[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

HEARING TO EXAMINE THE IMPLICATIONS OF POTENTIAL RETALIATORY MEASURES
TAKEN AGAINST THE UNITED STATES IN
RESPONSE TO MEAT LABELING
REQUIREMENTS

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON LIVESTOCK AND FOREIGN AGRICULTURE

OF THE

COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTEENTH CONGRESS

FIRST SESSION

__________

MARCH 25, 2015

__________

Serial No. 114-8

Printed for the use of the Committee on Agriculture
agriculture.house.gov

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

______

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COMMITTEE ON AGRICULTURE

K. MICHAEL CONAWAY, Texas, Chairman

RANDY NEUGEBAUER, Texas, COLLIN C. PETERSON, Minnesota,
Vice Chairman Ranking Minority Member
BOB GOODLATTE, Virginia DAVID SCOTT, Georgia
FRANK D. LUCAS, Oklahoma JIM COSTA, California
STEVE KING, Iowa TIMOTHY J. WALZ, Minnesota
MIKE ROGERS, Alabama MARCIA L. FUDGE, Ohio
GLENN THOMPSON, Pennsylvania JAMES P. McGOVERN, Massachusetts
BOB GIBBS, Ohio SUZAN K. DelBENE, Washington
AUSTIN SCOTT, Georgia FILEMON VELA, Texas
ERIC A. ``RICK'' CRAWFORD, Arkansas MICHELLE LUJAN GRISHAM, New Mexico
SCOTT DesJARLAIS, Tennessee ANN M. KUSTER, New Hampshire
CHRISTOPHER P. GIBSON, New York RICHARD M. NOLAN, Minnesota
VICKY HARTZLER, Missouri CHERI BUSTOS, Illinois
DAN BENISHEK, Michigan SEAN PATRICK MALONEY, New York
JEFF DENHAM, California ANN KIRKPATRICK, Arizona
DOUG LaMALFA, California PETE AGUILAR, California
RODNEY DAVIS, Illinois STACEY E. PLASKETT, Virgin Islands
TED S. YOHO, Florida ALMA S. ADAMS, North Carolina
JACKIE WALORSKI, Indiana GWEN GRAHAM, Florida
RICK W. ALLEN, Georgia BRAD ASHFORD, Nebraska
MIKE BOST, Illinois
DAVID ROUZER, North Carolina
RALPH LEE ABRAHAM, Louisiana
TOM EMMER, Minnesota
JOHN R. MOOLENAAR, Michigan
DAN NEWHOUSE, Washington

______

Scott C. Graves, Staff Director

Robert L. Larew, Minority Staff Director

______

Subcommittee on Livestock and Foreign Agriculture

DAVID ROUZER, North Carolina, Chairman

BOB GOODLATTE, Virginia JIM COSTA, California, Ranking
STEVE KING, Iowa Minority Member
SCOTT DesJARLAIS, Tennessee STACEY E. PLASKETT, Virgin Islands
VICKY HARTZLER, Missouri FILEMON VELA, Texas
TED S. YOHO, Florida RICHARD M. NOLAN, Minnesota
TOM EMMER, Minnesota CHERI BUSTOS, Illinois
DAN NEWHOUSE, Washington

(ii)

C O N T E N T S

----------
Page
Conaway, Hon. K. Michael, a Representative in Congress from
Texas, opening statement....................................... 5
Prepared statement........................................... 5
Costa, Hon. Jim, a Representative in Congress from California,
opening statement.............................................. 3
Goodlatte, Hon. Bob, a Representative in Congress from Virginia,
prepared statement............................................. 6
Rouzer, Hon. David, a Representative in Congress from North
Carolina, opening statement.................................... 1
Prepared statement........................................... 2

Witnesses

Weber, John P., President-Elect, National Pork Producers Council,
Dysart, IA..................................................... 7
Prepared statement........................................... 8
Wenk, Christopher W., Executive Director of International Policy,
U.S. Chamber of Commerce, Washington, D.C...................... 18
Prepared statement........................................... 19
Johnson, Roger, President, National Farmers Union, Washington,
D.C............................................................ 23
Prepared statement........................................... 24
Supplementary material....................................... 71
Dempsey, Linda M., Vice President of International Economic
Affairs, National Association of Manufacturers, Washington,
D.C............................................................ 48
Prepared statement........................................... 49
LaFaille, Tom, Vice President and International Trade Counsel,
Wine Institute, Washington, D.C................................ 52
Prepared statement........................................... 52
Smith, Michael T., Special Projects Manager, Harris Ranch
Company, Selma, CA............................................. 54
Prepared statement........................................... 56
Bodor, Alison, Executive Vice President, National Confectioners
Association, Washington, D.C................................... 57
Prepared statement........................................... 58

Submitted Material

Blum, Hon. Rod, a Representative in Congress from Iowa, submitted
statement...................................................... 71
Figel, Brad, Vice President, Public Affairs, Mars, Incorporated,
submitted letter............................................... 72
Mosely, Ben, Vice President, Government Affairs, USA Rice
Federation, submitted letter................................... 73

HEARING TO EXAMINE THE IMPLICATIONS OF POTENTIAL RETALIATORY MEASURES
TAKEN AGAINST THE UNITED STATES IN
RESPONSE TO MEAT LABELING
REQUIREMENTS

----------

WEDNESDAY, MARCH 25, 2015

House of Representatives,
Subcommittee on Livestock and Foreign Agriculture,
Committee on Agriculture,
Washington, D.C.
The Subcommittee met, pursuant to call, at 9:02 a.m., in
Room 1300 of the Longworth House Office Building, Hon. David
Rouzer [Chairman of the Subcommittee] presiding.
Members present: Representatives Rouzer, Goodlatte,
DesJarlais, Hartzler, Yoho, Emmer, Newhouse, Conaway (ex
officio), Costa, Vela, and Nolan.
Staff present: Caleb Crosswhite, Haley Graves, Jessica
Carter, John Goldberg, Patricia Straughn, Scott C. Graves,
Faisal Siddiqui, John Konya, Andy Baker, Mary Knigge, Mike
Stranz, Rob Larew, and Nicole Scott.

OPENING STATEMENT OF HON. DAVID ROUZER, A REPRESENTATIVE IN
CONGRESS FROM NORTH CAROLINA

The Chairman. This hearing of the Subcommittee on Livestock
and Foreign Agriculture to examine the implications of
potential regulatory measures taken against the United States
in response to meat labeling requirements, will come to order.
Good morning. I would like to start out by quickly thanking
Mr. Bryan Blinson for attending today's hearing. Mr. Blinson
serves as the Executive Director for the North Carolina
Cattlemen's Association, and as all of you all know, I
represent southeastern North Carolina. And, Mr. Blinson, great
to have you here with us this morning.
As we have all observed, the United States is fortunate to
have the safest, highest quality, most abundant, diverse, and
affordable food supply in the world. Like most Members who
represent rural districts, I understand the critical importance
of trade, both for our domestic prosperity as well as the moral
obligation to support global food security.
While my district has not always benefited from the trade
agreements the United States has entered into, my constituents
and I understand the potential benefits that can be derived
from fair trade agreements. And I emphasize the concept of
fairness because I have been critical of agreements that open
our domestic markets to products produced in my district, while
not necessarily gaining international market access for those
same products. When countries, or blocks of countries like the
European Union, impose non-tariff trade barriers on U.S.
agricultural products, and encourage other nations to adopt
similarly protectionist policies, one can question whether such
agreements are in fact fair. I also understand that to
criticize other nations for imposing protectionist barriers to
our products means that we must likewise be critical of our own
policies that do the same.
In 2002, and I happened to be on the staff of Senator Jesse
Helms at that point in time when we were working on the 2002
Farm Bill, the Congress of the United States adopted a
discriminatory country-of-origin labeling requirement for meat
products. As a staff member for Senator Helms during that
conference negotiation, I can attest to the fact that those
folks who opposed this mandate warned that the policy might not
comply with our trade agreements, and would likely not
withstand a challenge in the WTO. Those concerns have proven to
be well-founded considering the United States Country-of-Origin
Labeling Program for beef and pork was almost immediately
challenged by Canada and Mexico, and has lost at every level in
the WTO thus far.
Now, in the next few weeks, we expect to hear the results
of our final appeal, and if we lose there, we will likely face
substantial retaliatory sanctions. While we do not know for
certain what the WTO appellate body will decide, observers
believe that there is little likelihood that the appellate body
will reverse their earlier decision.
This Subcommittee has a responsibility to review the
potential impacts of retaliation by Canada and Mexico if those
countries are authorized to do so. As such, I have asked
members of the business community to testify today on what that
retaliation may look like and what this will mean for our
economy.
Secretary Vilsack has stated publicly that if the United
States loses the appeal, country-of-origin labeling cannot be
fixed administratively. The law will need to be changed. As a
Subcommittee, we need to understand the ramifications of
inaction and be prepared to move quickly after the WTO decision
is announced to avoid retaliation.
[The prepared statement of Mr. Rouzer follows:]

Prepared Statement of Hon. David Rouzer, a Representative in Congress
from North Carolina
Good morning.
I would like to start by quickly thanking Mr. Bryan Blinson for
attending today's hearing. Mr. Blinson serves as the Executive Director
for the North Carolina Cattlemen's Association. We are happy to have
him join us today and appreciate all his hard work on behalf of North
Carolina's cattlemen.
As we have all observed, the United States is fortunate to have the
safest, highest quality, most abundant, diverse, and affordable food
supply in the world. Like most Members who represent rural districts, I
understand the critical importance of trade, both for our domestic
prosperity as well as the moral obligation to support global food
security.
While my district has not always benefited from the trade
agreements the United States has entered into, my constituents and I
understand the potential benefits that can be derived from fair trade
agreements. I emphasize the concept of ``fairness'' because I have been
critical of agreements that open our domestic markets to products
produced in my district while not necessarily gaining international
market access for these same products. When countries--or blocks of
countries like the European Union--impose non-tariff trade barriers on
U.S. agricultural products, and encourage other nations to adopt
similarly protectionist policies, one can question whether such
agreements are in fact fair.
I also understand that to criticize other nations for imposing
protectionist barriers to our products means that we must likewise be
critical of our own policies that do the same.
In 2002, the Congress of the United States adopted a discriminatory
country-of-origin labeling requirement for meat products. As a staff
member for a Senate Agriculture Committee Member during the 2002 Farm
Bill conference, I can attest to the fact that those folks who opposed
this mandate warned that the policy might not comply with our trade
commitments and would likely not withstand a challenge in the WTO.
Those concerns have proven to be well-founded considering the
United States COOL program for beef and pork was almost immediately
challenged by Canada and Mexico, and has lost at every level in the WTO
thus far.
In the next few weeks, we expect to hear the results of our final
appeal and if we lose there, we will likely face substantial
retaliatory sanctions.
While we do not know for certain what the WTO appellate body will
decide, observers believe that there is little likelihood that the
appellate body will reverse the earlier decision.
This Subcommittee has a responsibility to review the potential
impacts of retaliation by Canada and Mexico if those countries are
authorized to do so. As such, I have asked members of the business
community to testify today on what that retaliation may look like and
what this will mean for our economy.
Secretary Vilsack has stated publicly that if the United States
loses the appeal, country-of-origin labeling cannot be fixed
administratively. The law will need to be changed. As a Subcommittee,
we need to understand the ramifications of inaction and be prepared to
move quickly after the WTO decision is announced to avoid retaliation.
With that, I want to thank our witnesses that are here today and
recognize the Ranking Member, Mr. Costa of California, for his opening
remarks.

The Chairman. With that, I want to thank our witnesses that
are here today and recognize the Ranking Member, Mr. Costa of
California for his opening remarks. Mr. Costa.

OPENING STATEMENT OF HON. JIM COSTA, A REPRESENTATIVE IN
CONGRESS FROM CALIFORNIA

Mr. Costa. Thank you very much, Chairman Rouzer, and
Members of the Subcommittee, and our Chairman who is here with
us this morning. We do have a group of distinguished
individuals on our panel, and I am pleased that they are going
to be able to give an opportunity to let us get a better sense
of the challenges we face when the World Trade Organization
will rule on the appeal that has been made.
I think many of us who have been around for a while are
familiar with the Mandatory Country-of-Origin Labeling rules,
whether you refer to it as MCOOL or COOL, it is all the same.
The fact is is that the debate has been going on for decades as
to whether Country-of-Origin Labeling is an experiment that can
or cannot work. Having worked with various elements of both the
pork and the beef and the poultry, and other industries that
have been impacted, the challenges facing Mandatory Country-of-
Origin Labeling it was destined not to work for a number of
factors. And while the supporters have argued the opposite, we
have to look at the facts. I think we have seen increase in
production costs, we have seen impacts to cost to consumers
that are factoring in meat purchasing.
What I would like to hear today from our witnesses is how
we move beyond the eventual ruling that we believe will be
forthcoming. One thing is for certain, the World Trade
Organization, the WTO, is set to release its decision on the
United States' appeal in conjunction with the ruling, and the
countries of Canada and Mexico are posed to react. To that end,
we need to talk about the potential reaction, and as the
Chairman indicated here of the Subcommittee, the fact that
Secretary Vilsack has indicated that no Administrative action,
if we have an adverse ruling, as many of us expect that we will
have, is going to resolve the issue. And, therefore, we will
have to move with legislation.
It is incumbent upon this Subcommittee and the full
Committee then to take action. The challenges to our trading
partners are significant. And for those of us who believe that
trade is critical for our country's economic well-being, and
especially for our agricultural economy throughout the 50
states, we can look at some harsh retaliation efforts that will
take place if, in fact, what many of us conclude will occur in
the next several months. As a matter of fact, and I suspect
some of the witnesses will testify to this point, the Canadian
Government has already published a list of commodities that
will be subject to retaliatory measures. Estimates say that the
impact could well be over $1 billion in California alone. We
annually export a great deal. In California, our agricultural
exports last year totaled over $18.5 billion, so this is
significant.
I remember very clearly, only a few years ago, when we had
a similar issue on trade with the Mexican Government on the
trucking dispute, devastating effects, as we saw the Mexican
Government take action on a host of issues involving
agricultural products that we import--or export, excuse me, to
Mexico. It was estimated that those retaliatory tariffs cost
U.S. agriculture over $2.6 billion. Of course, it was Mexico's
right to take that action. And it also impacted jobs, and when
we have a recovering economy, jobs are critical. No one wants
that, I don't believe. No one wants to see any retaliatory
efforts made by Canada or Mexico. And I know that--or I sense,
in talking with officials of those two governments, that they
don't want to impose these proposed retaliation tariffs.
So I am pleased that this hearing is taking place this
morning. It gives us an opportunity to establish a record as to
the potential impacts. And I would also like the witnesses to
suggest how you think we might want to go about with
legislation in the event that action takes place, as many of us
believe that it will. However, it is important that once this
process is complete, that the Congress resolve this issue.
In closing, Mr. Chairman, I have heard from the livestock
industry, the pork producers, as well as people from the wine
and tree and other manufacturing processing industries
throughout California who are very concerned about the
potential retaliatory effects that could be taken by Canada and
Mexico. It is time we get to work.
And again, thank you, Mr. Chairman, for calling this
hearing of the Subcommittee. Thank you, Mr. Chairman, of the
full Committee, because you and I talked about this issue over
the last several years, and I know it concerns you as well. So
I look forward to listening to the testimony.
The Chairman. Thank you, Mr. Costa.
I would now like to recognize the Chairman of the full
Committee, Chairman Conaway.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
IN CONGRESS FROM TEXAS

Mr. Conaway. Thanks, Chairman Rouzer, and, David, thank you
for those kind comments.
I just want to do a couple of things. One, congratulate you
on your chairmanship, and you are chairing your very first
official hearing. You bring great talent and a wealth of
background and experiences to the tasks, and I have great
confidence in you and Mr. Costa that you will get this done.
I also want to thank our witnesses for coming here today to
help us understand some of the retaliatory impacts that may
occur if we fail to act, and in fact, the WTO rules against the
appeal that is out there. This debate surrounding Mandatory
Country-of-Origin Labeling precedes my term in Congress,
although as a freshman, one of my first Floor speeches related
to agriculture was related to this topic. In spite of the
reservations that cattlemen and pork producers expressed at the
time this was being considered that it wouldn't work and that
we would suffer consequences as a result of it. Congress
decided to go ahead and try to implement it, at great costs,
and in my view, unquantifiable benefits as a result of this
process. In addition to that, the impact has been that our
North American livestock market has been fractured
unnecessarily, and again for no good reason.
So as we examine the impacts of retaliation, if we lose the
appeal, I hope that the Members will also recognize the failure
of this experiment, and work together to avoid the economic
damages that will be felt by American businesses both inside
and outside agriculture.
So with that, Mr. Chairman, good luck on your role as
Chairman of this Subcommittee, and I look forward to your
leadership. I yield back.
[The prepared statement of Mr. Conaway follows:]

Prepared Statement of Hon. K. Michael Conaway, a Representative in
Congress from Texas
Thank you, Chairman Rouzer and Ranking Member Costa, for holding
this important hearing.
Thank you, also to all of our witnesses for taking your time to be
here today and helping us understand the consequences we face if we
fail to act and the WTO appellate body ultimately finds against the
United States as the previous panels have.
The debate surrounding mandatory country-of-origin labeling for
meat precedes my being a Member. In fact, as a freshman Member of this
House, one of my very first Floor speeches related to agriculture was
on this very topic.
Considering the discussions that took place prior to the initial
passage of COOL in 2002, mainstream cattlemen and pork producers have
raised concerns that this policy would likely not withstand legal
challenges in the WTO. Yet we proceeded to implement a program with
enormous costs and no quantifiable benefits. Our North American
livestock market has been unnecessarily fractured by this policy, but I
believe that the damage can be repaired.
As we examine the impacts of retaliation if we lose this appeal, I
hope that all Members will recognize the failure of this experiment and
work together to avoid the economic damages that could be felt by
American businesses both inside and outside of agriculture.
Once again, I thank Chairman Rouzer for holding this hearing and
yield back.

The Chairman. Thank you, Mr. Chairman. I appreciate your
confidence and look forward to working in this role as well.
The chair would request that other Members submit their
opening statements for the record so the witnesses may begin
their testimony, and to ensure that there is ample time for
questions.
[The prepared statement of Mr. Goodlatte follows:]

Prepared Statement of Hon. Bob Goodlatte, a Representative in Congress
from Virginia
Chairman Rouzer and Ranking Member Costa, thank you for holding
this critical hearing to examine the implications of potential
retaliatory measures to be taken against the United States in response
to meat labeling requirements under the mandatory country-of-origin
labeling requirement. As you know, our nation now stands at a cross
roads as we face the daunting impacts of international trade
retaliation as the World Trade Organization's (WTO) Appellate Body is
scheduled to rule shortly on whether the U.S. mandatory Country-of-
Origin (COOL) rule violates World Trade Organization (WTO) obligations.
The COOL provisions, as originally written, have raised many
concerns among producers, processors, suppliers and retailers. In
response, I have long called for a voluntary program that is market
driven, recognizes existing labeling programs, minimizes record-
keeping, allows flexibility, trade compliant and is cost-effective.
As you know, in 2002, Congress enacted mandatory country-of-origin
labeling (COOL) provisions requiring retailers of certain meat products
to inform consumers of a product's country-of-origin. In June of 2003,
when I chaired the House Committee on Agriculture one of the first
hearings on COOL portended the serious widespread impacts, as I was
able to note at that time, ``This hearing reinforces my belief that we
are moving forward with an idea that will have a negative impact on our
producers, and little or no benefit for those it was intended to
help.''
In 2005, I was led to introduce voluntary country-of-origin
labeling (VCOOL) legislation, which would have established a voluntary
program to allow producers to work with processors and retailers to
provide labeling information in the marketplace in such a way that
informs consumers and benefits producers. As I noted 10 years ago,
``this approach benefits consumers and producers and is preferable to a
mandatory program that is more likely to hurt the people it was
intended to help.''
It has now been nearly 13 years since enactment of the 2002 Farm
Bill and yet there is still a lack of consensus about how the COOL
provisions could be implemented not only in a cost effective manner but
in a manner compliant with our trade obligations. Even the U.S.
Department of Agriculture estimated implementation costs stand at
roughly $2.6 billion, with each affected commodity producer paying
$370, intermediary firms paying $48, 219 each, and retailers paying
$254,685 a piece.
In November 2014, Secretary of Agriculture Vilsack said that USDA
analysis shows that there is no regulatory fix that will allow COOL
regulations to be consistent with the COOL law and also satisfy the WTO
rulings. The WTO's Appellate Body decision anticipated this spring will
once again rule against the U.S. due to discrimination against imported
livestock. Canada and Mexico have clearly stated that they will request
WTO authorization to suspend concessions with the United States,
through retaliation, in the form of raising tariffs on U.S. products
that they import.
My home, the Commonwealth of Virginia could face tariffs on $331
million worth of exports, including targeted retaliation already
proposed by Canada impacting 22 key state exports such as bread and
pastries $17 million, fresh chilled poultry parts $6 million, prepared
cocoa and chocolate products of $4 million, impacting my Congressional
district, and as importantly restricting worldwide global trading
markets.
The stated intent of those who advocate a mandatory COOL scheme has
been to benefit producers, which is a worthy goal. Unfortunately,
United States' continued failure to bring the Country-of-Origin
Labeling (COOL) rules into compliance with its WTO obligations is
threatening the U.S. economy and exports to our two largest trading
partners. With the threat of retaliation looming for wide range of our
nation's agricultural as well as manufactured products, Congress must
move quickly to address these WTO-inconsistent provisions--to preserve
both our standing in world international trade markets and sustain
economic capacity for our nation.

The Chairman. The chair would like to remind Members that
they will be recognized for questioning in order of seniority
for Members who were present at the start of the hearing, after
that, Members will be recognized in order of their arrival. I
appreciate Members' understanding.
The witnesses are asked to limit their oral presentation to
4 minutes. All written statements will be included in the
record.
I would like to welcome our witnesses to the table. First,
we have Mr. John Weber, President-Elect, National Pork
Producers Council; Mr. Christopher Wenk, Executive Director of
International Policy, U.S. Chamber of Commerce; Mr. Roger
Johnson, President, National Farmers Union; Ms. Linda Dempsey,
Vice President of International Economic Affairs, National
Association of Manufacturers; Mr. Alison--pardon me, Mr. Tom
LaFaille, Vice President and International Trade Counsel of the
Wine Institute. I almost skipped you there. My apologies. Ms.
Alison Bodor, Executive Vice President, National Confectioners
Association; and Mr. Michael Smith, Special Projects Manager,
Harris Ranch Company, Selma, California.
Mr. Weber, please begin when you are ready.

STATEMENT OF JOHN P. WEBER, PRESIDENT-ELECT, NATIONAL PORK
PRODUCERS COUNCIL, DYSART, IA

Mr. Weber. Mr. Chairman, I appreciate the opportunity to
represent NPPC at this hearing today.
Exports add significantly to the bottom line of each U.S.
pork producer. U.S. exports of pork and pork products totaled
2.18 million metric tons in 2014, representing over \1/4\ of
our total production. These exports add more than $63 to the
value of each and every hog marketed. Mexico and Canada are our
second and third largest foreign markets for pork, with U.S.
exports totaling $1.55 billion and $904 million respectively.
Our exports to Canada since the implementation of the U.S.-
Canada Free Trade Agreement in 1989 have grown over 20 times.
Our pork exports to Mexico since NAFTA in 1994 have grown by
over 12 times. We cannot afford to have these exports
disrupted, nor can workers in allied sectors.
The U.S. pork industry supports an estimated 550,000
domestic jobs, mostly in rural areas, and about 110,000 of
these are the result of pork exports. The loss of the Mexican
and Canadian markets, valued at $2.4 billion, could, therefore,
cost over 16,000 non-farm jobs. But these job losses are only
those that relate to pork exports. According to a CRS report,
it has been estimated that retaliation by both Mexico and
Canada could target between $1 billion and $2 billion in
exports from the United States. Other estimates suggest it
could exceed $2 billion, and Canada and Mexico will likely seek
an even higher number; perhaps as much as a combined total of
$4 billion. If it comes to this, a WTO panel will ultimately
decide the actual number. But any of these figures could result
in a devastating blow to tens of thousands of people in our
sector and others.
Canada has published a list of over three dozen categories
of products that could be hit. Mexico has not yet made public
its list, but our experience with retaliation by Mexico
resulting from its successful challenge to the U.S. ban on
Mexican trucking suggests that its list will be at least as
long, and likely quite similar to the trucking retaliation.
That retaliation totaled $2.4 billion.
We understand that Mexican importers are already looking
for alternative sources of supply for products on the list.
There is no way we can compete with products from other
countries when our products are subject to steep retaliatory
duties.
Regrettably for us, pork is on Canada's target list and
will likely be on Mexico's. Because COOL involves agricultural
products, retaliation is inevitably going to fall heavily on
U.S. agriculture. If the situation were reversed, the United
States would retaliate against imported products in the same
sector. When the European Union refused to lift its illegal ban
on imports of U.S. beef in the hormone dispute, we retaliated
against European food products. But that dispute, involving
trade of $93 million, pales in comparison with the Country-of-
Origin Labeling case in terms of the scope of the retaliation
involved.
Because the damage to U.S. exports will be multiplied
across our economy, the economic effect will greatly exceed
whatever retaliation is ultimately authorized by WTO, and will
hurt many Americans that had nothing to do with implementing
COOL. Not only will innocent bystanders be harmed, the economy
as a whole will suffer. Professor Dermot Hayes of Iowa State
University calculates that the effect of $2 billion in
retaliation would be 17,000 lost U.S. jobs. Retaliation of $4
billion would double this figure. Estimates of state-by-state
job losses are contained in Attachment 1 of the NPPC written
statement.
We expect the WTO to once again rule against the United
States in mid-May. Congress must be prepared to repeal the
offending parts of the statute to bring the U.S. into
compliance with WTO rules. Congress should not allow
retaliation against pork producers and other sectors of the
U.S. economy.
Thank you.
[The prepared statement of Mr. Weber follows:]

Prepared Statement of John P. Weber, President-Elect, National Pork
Producers Council, Dysart, IA
Introduction
The National Pork Producers Council (NPPC) is an association of 43
state pork producer organizations that serves as the global voice for
the nation's pork producers. The U.S. pork industry represents a
significant value-added activity in the agriculture economy and the
overall U.S. economy. Nationwide, more than 68,000 pork producers
marketed more than 111 million hogs in 2013, and those animals provided
total gross receipts of more than $20 billion. Overall, an estimated
$21.8 billion of personal income and $35 billion of gross national
product are supported by the U.S. hog industry. Economists Daniel Otto,
Lee Schulz and Mark Imerman at Iowa State University estimate that the
U.S. pork industry is directly responsible for the creation of nearly
35,000 full-time equivalent pork producing jobs and generates about
128,000 jobs in the rest of agriculture. It is responsible for
approximately 111,000 jobs in the manufacturing sector, mostly in the
packing industry, and 65,000 jobs in professional services such as
veterinarians, real estate agents and bankers. All told, the U.S. pork
industry is responsible for more than 550,000 mostly rural jobs in the
United States.
The U.S. Pork Industry is Dependent on Exports
Exports add significantly to the bottom line of each U.S. pork
producer. U.S. exports of pork and pork products totaled 2.18 million
metric tons in 2014, representing over \1/4\ of U.S. production. These
exports add more than $63 to the value of each hog marketed.
Mexico and Canada are the second and third largest foreign markets,
respectively, for U.S. pork, with U.S. exports totaling $1.55 billion
and $904 million, respectively. U.S. exports to Canada since the
implementation of the U.S.-Canada Free Trade Agreement in 1989 have
grown by over 20 times, while pork exports to Mexico since NAFTA in
1994 have grown by over 12 times.
The U.S. pork industry cannot afford to have these exports
disrupted and nor can workers in allied sectors. The U.S. pork industry
supports an estimated 550,000 domestic jobs, most in rural areas, and
about 110,000 of these are the result of pork exports. The loss of the
Mexican and Canadian markets valued at $2.4 billion could, therefore,
cost over 16,000 non-farm jobs. But these job losses are only those
that relate to pork exports. According to a CRS report,\1\ it has been
estimated that retaliation by both Mexico and Canada could target
between $1 billion and $2 billion in exports from the U.S. Other
estimates suggest it could exceed $2 billion, and Canada and Mexico
will likely seek an even higher number, perhaps as much as a combined
total of $4 billion. If it comes to this, a WTO panel will ultimately
decide the actual number.
---------------------------------------------------------------------------
\1\ http://fas.org/sgp/crs/misc/RS22955.pdf..
---------------------------------------------------------------------------
But any of these figures could result in a devastating blow to tens
of thousands of people in the U.S. pork sector and others. Canada has
published a list \2\ of over three dozen categories of products that
could be hit. Mexico has not yet made public its list, but U.S.
experience with retaliation by Mexico, resulting from its successful
challenge to the U.S. ban on Mexican trucking, suggests that its list
will be at least as long and likely quite similar to the trucking
retaliation list. That retaliation totaled $2.4 billion. It has been
rumored that Mexican importers are already looking for alternative
sources of supply for products on the list. There is no way the United
States can compete with products from other countries when U.S.
products are subject to steep retaliatory duties.
---------------------------------------------------------------------------
\2\ http://www.international.gc.ca/media_commerce/comm/news-
communiques/2013/06/07a.aspx?lang=eng
---------------------------------------------------------------------------
Regrettably for the U.S. pork industry, pork is on Canada's target
list and will likely be on Mexico's. Because COOL involves agricultural
products, retaliation is inevitably going to fall heavily on U.S.
agriculture. If the situation were reversed, the United States would
retaliate against imported products in the same sector. When the
European Union refused to lift its illegal ban on imports of U.S. beef
in the hormone dispute, the United States retaliated against European
food products. But that dispute, involving trade of $93 million,\3\
pales in comparison with the COOL case in terms of the scope of
retaliation involved.
---------------------------------------------------------------------------
\3\ Congressional Research Service Report R40449.
---------------------------------------------------------------------------
Because the damage to U.S. exports will be multiplied across the
economy, the economic effect will greatly exceed whatever retaliation
is ultimately authorized by the WTO and will hurt many Americans who
had nothing to do with implementing the COOL law. Not only will
innocent bystanders be harmed, the economy as a whole will suffer.
Professor Dermot Hayes of Iowa State University calculates that the
effect of $2 billion in retaliation would be 17,000 lost U.S. jobs.
Retaliation of $4 billion would double this figure. Estimates of state-
by-state job losses are contained in Attachment 1.
The Commerce Department recently reported \4\ that nearly 30
percent of gross domestic product (GDP) growth over the last 5 years
has been the result of export growth. Moreover, two of the three export
markets that contributed the most to this export growth are Mexico and
Canada. Retaliation by them would needlessly put a brake on an element
of the U.S. economy that has been performing well.
---------------------------------------------------------------------------
\4\ ``The Role of Exports in the United States Economy,'' The U.S.
Department of Commerce, May 13, 2014.
---------------------------------------------------------------------------
The Cost of Retaliation is Not Worth the Insignificant Benefits from
COOL
So what, one may ask, does our nation gain from COOL as it is
presently constituted?

COOL imparts no useful health or safety information to
consumers. No health or safety rationale for COOL has ever been
advanced by USDA, because, quite simply, there is none.
Imported meat products are already subject to the same strict
sanitary requirements applied to domestically produced meat.

COOL imposes additional costs on processors that are passed
onto consumers. Moreover, the need for the Department of
Agriculture to ensure compliance means COOL adds costs to the
taxpayer. USDA's analysis of its final rule estimated first-
year implementation costs to be approximately $2.6 billion for
those affected. Of the total, each commodity producer would
bear an average estimated cost of $370, intermediary firms
(such as wholesalers or processors) $48,219 each and retailers
$254,685 each.\5\ When USDA announced the modification of the
COOL rule in May 2013 in a vain effort to comply with the
adverse WTO ruling, it said that that change in the regulation
alone would cost an estimated $123.3 million, with a range of
$53.1 million to $192.1 million, and that 33,350 establishments
owned by 7,181 firms will be either directly or indirectly
affected by this rule. Of these establishments/firms, USDA
estimated that 6,849 qualified as small businesses.\6\
---------------------------------------------------------------------------
\5\ Congressional Research Service RS22955.
\6\ http://www.gpo.gov/fdsys/pkg/FR-2013-05-24/pdf/2013-12366.pdf

COOL has caused trade tensions with two of the largest
trading partners of the United States, and now it appears that
retaliation by them will result in significant additional costs
---------------------------------------------------------------------------
to the U.S. economy in lost exports and jobs.

Because the WTO does not and could never have an enforcement arm,
sanctioned retaliation tailored to bring rights and obligations back
into balance is the only permissible recourse to address trade measures
that have been judged not to comply with internationally accepted rules
if nations do not act to bring those measures into compliance.
The United States has been the global leader in the creation of
both a rules-based global trading system and a dispute settlement
process within that system that is fair and balanced. The rules COOL
has been found to violate are those the United States helped write and
those the United States demanded other countries abide by in their
treatment of U.S. exports. The United States is quick to applaud when
panels find in its favor and quick to insist that U.S. trading partners
bring offending measures into conformity with those rules.
The United States should be equally quick to do so itself.
Background
COOL became effective on Sept. 30, 2008, under an interim final
rule published by USDA. USDA published a final rule with several
changes to the interim final rule in January 2009, and the final rule
took effect March 16 of that year.
The following table provides an overview of the rule and its
complexity with respect to determining the appropriate label at the
retail level.

--------------------------------------------------------------------------------------------------------------------------------------------------------
Muscle Cuts & Ground Meat
Categories COOL Statutory Definition AMS Final Rule (January 2009) COOL Label at Retail Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
United States Country-of-Origin ``beef [or] . . . pork . . . For beef and pork, means:
[Category A or Label A] derived from an animal that
was . . . exclusively born,
raised, and slaughtered in
the United States''
Product of the US(A).
--------------------------------------------------------------------------------------------------------------------------------------------------------
Multiple Countries of Origin ``beef [or] . . . pork . . .
[Category B or Label B] derived from an animal that
is--
For muscle cuts of beef and pork ``derived from animals Product of the U.S., Country X
For muscle cuts of beef and pork ``derived from animals
that are born in Country X or Country Y, raised and
slaughtered in the United States, that are commingled
during a production day with muscle cut[s of beef and
pork] derived from animals that are imported into the
United States for immediate slaughter . . ., the
origin may be designated as Product of the United
States, Country X, and (as applicable) Country Y.''
``In each case, the countries may be listed in any
order. In addition, the origin declaration may include
more specific information related to production steps
provided records to substantiate the claims are
maintained and the claim is consistent with other
applicable Federal legal requirements.''
--------------------------------------------------------------------------------------------------------------------------------------------------------
Imported for Immediate ``beef [or] . . . pork . . . ``If an animal was imported into the United States for Product of Country X, U.S.
Slaughter [Category C or Label derived from an animal that immediate slaughter [defined as `consignment directly
C] is imported into the United from the port of entry to a recognized slaughtering
States for immediate establishment and slaughtered within 2 weeks from the
slaughter'' date of entry'], the origin of the resulting [beef and
pork] derived from that animal shall be designated as
Product of Country X and the United States.''
--------------------------------------------------------------------------------------------------------------------------------------------------------
Foreign Country-of-Origin ``beef [or] . . . pork . . . ``Imported [beef and pork] for which origin has already Product of X.
[Category D or Label D] derived from an animal . . . been established as defined by this law (e.g., born,
not born, raised, or raised, and slaughtered or produced) and for which no
slaughtered in the United production steps have occurred in the United States,
States'' shall retain their origin, as declared to U.S. Customs
and Border Protection at the time the product entered
the United States, through retail sale.''
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ground Beef or Pork ``notice . . . for ground ``The declaration for ground beef, ground pork . . . Product of U.S., Country X,
beef, ground pork . . . shall shall list all countries of origin contained therein [and as applicable] Country
include a list of all [or] . or that may be reasonably contained therein. In Y, Country Z.
. . all reasonably possible determining what is considered reasonable, when a raw
countries of origin of such material from a specific origin is not in a
ground beef, ground pork, . . processor's inventory for more than 60 days, that
.'' country shall no longer be included as a possible
country-of-origin.''
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Research Service Report RS22955.

Canada and Mexico initiated separate dispute settlement cases in
December 2008. The two cases were combined in May 2010 because of the
similarity of the claims. See Attachment 2 for a full timeline of
actions in this case. A WTO summary of key findings by various WTO
bodies can be found in Attachment 3 and at the WTO website: https://
www.wto.org/english/tratope/dispu_e/cases_e/ds384_e.htm.
In short, Canada and Mexico both stated that they were not
challenging mandatory country-of-origin labeling as such; they were
arguing that COOL requirements, as implemented, act as a protectionist
trade barrier that distorts competition between imported and domestic
meat products. A major complaint involved the reservation of the
``Product of the United States'' label for animals that were born,
raised and slaughtered in the U.S. They argued that this unfairly
denied the use of that label to products from animals that were
exported to the U.S. at a young age and subsequently raised and
slaughtered in the United States. Mexico pointed out that 70 percent of
the weight and value of the feeder cattle it exports to the U.S. is
added within U.S. territory.
In July 2012, the WTO ruled against the United States, with the WTO
Appellate Body finding that COOL ``does not impose labeling
requirements for meat that provide consumers with origin information
commensurate with the type of origin information that upstream
livestock producers and processors are required to maintain and
transmit.''
The United States then attempted to come into compliance with the
WTO ruling by amending the regulation and requiring the industry to
provide more information. A table comparing the two is provided here:

------------------------------------------------------------------------
Category 2009 Label 2013 Label
------------------------------------------------------------------------
A (U.S.) Product of the United Born, Raised, and
States Slaughtered in the
United States
B (Multiple) Product of the United Born in X, Raised and
States and X; or, Slaughtered in the
Product of the United United States; or,
States, X, and Y Born in X, Raised in
Y, Slaughtered in the
United States.
C (Imm. Slaughter) Product of X and the Born and Raised in X,
United States Slaughtered in the
United States
D (Foreign) Product of X Product of X
Commingled (A) + (B) Product of the United Prohibited
States and X
Commingled (B) + (C) Product of the United Prohibited
States and X; or
Product of X and the
United States
------------------------------------------------------------------------

In August 2013, Canada and Mexico formally initiated WTO compliance
proceedings to challenge USDA's amended COOL rule. Canada and Mexico
stated that, like its predecessor, the new regulation discriminates
against meat products derived from livestock from their respective
countries and, therefore, violates WTO rules.
On Oct. 20, 2014, a WTO compliance panel agreed with most the
Canadian and Mexican claims, finding that the amended COOL rule
``accords imported [Canadian and Mexican] livestock treatment less
favorable than that accorded to like domestic livestock.'' The U.S.
subsequently appealed that ruling, and the WTO Appellate Body is
expected to rule on that appeal in May.
The WTO is likely once again to find that COOL violates WTO
principles. Once that happens, Mexico and Canada will request the WTO
to allow them to place retaliatory tariffs on U.S. pork and many other
U.S. products. Absent Congressional or regulatory action to eliminate
offending elements of the COOL statue, Canada and Mexico can be
expected to retaliate against U.S. exports during the second part of
this year.
U.S. Agriculture has Unfortunate Experience with Retaliation
On March 16, 2009, Mexico announced it would retaliate against the
United States for the cancellation of the Cross-Border Trucking
Demonstration Program. This action was taken as a result of a ruling by
a neutral NAFTA dispute settlement panel, which found that the U.S.
trucking restrictions were in breach of its NAFTA obligations. The
Mexican announcement raised tariffs on 89 different U.S. products,
ranging from many agriculture goods (pork, apples, soups and sauces,
cheese, pears, pet food, potatoes, nuts, almonds, strawberries, onions,
pistachios, peanuts, wine and various other fruits and vegetables) to
such items as jewelry. These totaled $2.4 billion (2008 value) in U.S.
exports. Perhaps no U.S. sector was as hard hit as the potato industry,
which saw immediate losses in market share to Canada and prices to
growers plummet. Potato producers learned the hard way that once a
market is lost to competitors, it is hard and takes time to recapture.
Sometimes a market is lost for good.
Mexico later decided to revise the list of affected products on
Aug. 18, 2010, and raised the number of products to 99 valued at $2.03
billion (2009 value), with tariffs ranging from 5-25 percent. Sixteen
products were dropped from the original list and 26 products were added
to the revised list. This ``carrousel'' form of retaliation added
additional uncertainty to markets and further harm to affected U.S.
producers.
On July 6, 2011, the U.S. and Mexico signed a formal agreement,
allowing Mexican trucks to operate in the U.S. as part of a pilot
program, which resulted in the Mexican government phasing out the
retaliatory tariffs.
Conclusion
The U.S. pork industry expects the WTO to once again rule against
the United States in mid-May. Congress must be prepared to repeal the
offending parts of the statue to bring the U.S. into compliance with
WTO rules. Congress should not allow retaliation against pork producers
and other sectors of the U.S. economy.
Attachment 1

Estimated American Job Losses Due to Retaliation for COOL by Canada and
Mexico
------------------------------------------------------------------------
Job Losses from $2 Job Losses from $4
Billion Retaliation billion in Retaliation
------------------------------------------------------------------------
Alabama 108 215
Alaska 0 0
Arizona 874 1,749
Arkansas 130 260
California 828 1,657
Colorado 230 460
Connecticut 141 283
Delaware 24 48
Florida 93 186
Georgia 227 454
Hawaii 1 2
Idaho 79 158
Illinois 406 812
Indiana 828 1,657
Iowa 598 1,197
Kansas 418 837
Kentucky 74 148
Louisiana 598 1,197
Maine 34 68
Maryland 135 270
Massachusetts 307 614
Michigan 1,473 2,945
Minnesota 245 491
Mississippi 204 409
Missouri 287 573
Montana 14 28
Nebraska 437 874
Nevada 79 157
New Hampshire 74 147
New Jersey 249 497
New Mexico 44 88
New York 367 734
North Carolina 226 452
North Dakota 163 326
Ohio 460 920
Oklahoma 81 162
Oregon 63 125
Pennsylvania 382 764
Rhode Island 22 44
South Carolina 224 447
South Dakota 158 317
Tennessee 448 896
Texas 4,234 8,468
Utah 99 198
Vermont 52 104
Virginia 152 305
Washington 333 666
West Virginia 9 18
Wisconsin 283 565
Wyoming 4 8
-----------------------------------------------
Total................. 17,000 34,000
------------------------------------------------------------------------
Source: Dr. Dermot Hayes, Iowa State University.
Based on trade in products likely to be included in Canada's and
Mexico's retaliation lists, as determined by the COOL Coalition.

Attachment 2

Major COOL Developments & WTO Dispute Settlement Case
------------------------------------------------------------------------

------------------------------------------------------------------------
May 13, 2002 COOL provisions are enacted in the 2002 Farm
Bill to take effect on September 30, 2004
(P.L. 107-171, 10816).
October 30, 2003 USDA's Agricultural Marketing Service (AMS)
publishes in the Federal Register the
proposed rule on COOL. The comment period,
initially to close December 29, 2003, is
extended to February 27, 2004.
January 23, 2004 Implementation of COOL for covered commodities
except fish and shellfish is delayed until
September 30, 2006, per enactment of the FY
2004 omnibus appropriations act (P.L. 108-
199, Division A, 749).
October 5, 2004 AMS publishes in the Federal Register the
interim final rule on COOL for fish and
shellfish.
April 4, 2005 COOL labeling for fish and shellfish takes
effect.
November 10, 2005 Implementation of COOL for all other covered
commodities is delayed until September 30,
2008, per enactment of the FY 2006
agriculture appropriations act (P.L. 109-97,
792).
May 22, 2008 Amendments to the 2002-enacted COOL provisions
become law in the 2008 Farm Bill (P.L. 110-
246, 11002), to take effect on September
30, 2008.
August 1, 2008 AMS publishes in the Federal Register the
interim final rule to implement COOL for all
covered commodities except fish and
shellfish, to take effect on September 30,
2008.
December 16, 2008 Canada, joined by Mexico, holds consultations
on COOL with the United States.
January 15, 2009 AMS publishes the final rule to implement COOL
for all covered commodities, to take effect
on March 16, 2009.
February 20, 2009 Secretary of Agriculture sends letter to meat
and food industry representatives urging the
voluntary adoption of three labeling changes.
March 16, 2009 COOL's final rule for all covered commodities
takes effect.
June 5, 2009 Canada holds consultations with the United
States to resolve differences on COOL.
October 7, 2009 Canada requests the establishment of a World
Trade Organization (WTO) dispute settlement
(DS) panel to consider its complaint on the
U.S. COOL program. Mexico follows with a
comparable request on October 9.
November 19, 2009 WTO establishes a DS panel to consider
complaints made by Canada and Mexico on the
U.S. COOL program.
November 18, 2011 WTO DS panel releases final report that
concludes that some features of U.S. COOL
discriminate against foreign livestock and
are not consistent with U.S. WTO trade
obligations.
March 23, 2012 The United States appeals the WTO DS panel's
conclusions.
March 28, 2012 Canada and Mexico also appeal some of the DS
panel's conclusions.
June 29, 2012 The WTO's Appellate Body (AB) issues its
report, upholding the DS panel finding that
U.S. COOL does not favorably treat imported
livestock but reversing the other finding
that COOL does not provide sufficient
information to consumers on the origin of
meat products.
July 10, 2012 Canada, Mexico, and the United States withdraw
consideration of the AB report from the
Dispute Settlement Body (DSB) agenda to
provide more time to consult on the 90 day
reporting requirement that was missed by the
AB.
July 23, 2012 WTO's DSB adopts the AB report and the DS
panel report, as modified by the AB report.
August 22, 2012 30 day deadline for the United States to
inform the DSB about how it plans to
implement the WTO findings.
August 31, 2012 United States informs the DSB that it intends
to comply with the WTO recommendations and
rulings, and states its need for a
``reasonable period of time'' to do so.
October 4, 2012 With Canada, Mexico, and United States unable
to agree on what a reasonable period of time
should be and on who the arbitrator should
be, the WTO's Director appoints an arbitrator
to determine this.
December 4, 2012 WTO's arbitrator announces his determination
that the ``reasonable amount of time'' for
the United States to implement the DSB's
recommendations and rulings is 10 months from
when the AB and DS panel reports were adopted
(i.e., May 23, 2013).
March 12, 2013 AMS issues a proposed rule to modify certain
COOL labeling requirements for muscle-cut
commodities to bring them into compliance
with WTO's findings and to improve the COOL
program's overall operation.
April 11, 2013 Deadline for interested parties to submit
comments to AMS on proposed COOL rule.
May 23, 2013 Deadline for the United States to comply with
the WTO's findings on U.S. COOL.
May 24, 2013 At the DSB meeting, the United States notifies
that it had complied with the WTO findings on
COOL by issuing a final rule on May 23. No
compliance proceeding was initiated by Canada
or Mexico.
June 7, 2013 Canada releases an itemized tariff list of
products that could be targeted in a
retaliatory action against the United States.
July, August, September In July, U.S., Canadian, and Mexican meat
2013 industry organizations file suit against USDA
to block the May 2013 COOL rule. They file a
motion for a preliminary injunction against
implementing the rule in August. In
September, the District Court for the
District of Columbia denies the group's
request to halt the implementation of the
COOL rule.
August 19, 2013 Canada and Mexico notify the DSB that they
will request the establishment of a
compliance panel at the August 30 meeting of
the DSB.
August 30, 2013 The United States objects to the establishment
of a compliance panel. The request will be
made again at the September DSB meeting on
September 25, and the United States will not
be able to object to its formation.
September 27, 2013 The DSB selects the members of the compliance
panel, the same members that served earlier
on the COOL dispute settlement panel.
February 18-19, 2014 The WTO's compliance panel hears the COOL
case.
October 20, 2014 The WTO releases the compliance panel report.
Parties have 60 days to appeal.
November 28, 2014 The United States appeals the findings of the
compliance panel report.
February 16-17, 2014 Appellate Body hears the U.S. appeal of the
compliance panel report.
May 18, 2015 Expected date of Appellate ruling on the U.S.
appeal.
------------------------------------------------------------------------
Main source: Congressional Research Service RS22955.

Attachment 3
wto summary of key findings of the dispute settlement panel, the
appellate body and the compliance panel
Summary of Key Findings of the Initial Dispute Settlement Panel Report,
November 18, 2011
This dispute concerns: (i) the U.S. statutory provisions and
implementing regulations setting out the United States' mandatory
country-of-origin labeling regime for beef and pork (``COOL measure'');
as well as (ii) a letter issued by the U.S. Secretary of Agriculture
Vilsack on the implementation of the COOL measure (``Vilsack letter'').
The Panel determined that the COOL measure is a technical
regulation under the TBT Agreement, and that it is inconsistent with
the United States' WTO obligations. In particular, the Panel found that
the COOL measure violates Article 2.1 of the TBT Agreement by according
less favorable treatment to imported Canadian cattle and hogs than to
like domestic products. The Panel also found that the COOL measure does
not fulfil its legitimate objective of providing consumers with
information on origin, and therefore violates Article 2.2 of the TBT
Agreement.
As regards the Vilsack letter, the Panel found that the letter's
``suggestions for voluntary action'' went beyond certain obligations
under the COOL measure, and that the letter therefore constitutes
unreasonable administration of the COOL measure in violation of Article
X:3(a) of the GATT 1994. The Panel refrained from reviewing the Vilsack
letter under the TBT Agreement, as it found that this letter is not a
technical regulation under that agreement.
In light of the above findings of violation, the Panel did not
consider it necessary to rule on the claims under Article III:4 of the
GATT 1994 (national treatment) or on the non violation claims under
Article XXIII:1(b) of the GATT 1994.
Summary of Key Findings of the Appellate Body Regarding the U.S. Appeal
of the Panel Report
The appeal concerned primarily the COOL measure (the U.S. statutory
provisions and implementing regulations setting out the United States'
mandatory country-of-origin labeling regime for beef and pork), and the
Panel's findings that this measure is inconsistent with Articles 2.1
and 2.2 of the TBT Agreement. The United States appealed both findings.
Canada appealed certain aspects of the Panel's analysis under Article
2.2, and requested the Appellate Body to complete the legal analysis in
the event that it reversed the Panel's finding under Article 2.2.
Canada also raised conditional appeals with respect to the COOL measure
under Articles III:4 and XXIII:1(b) of the GATT 1994. Although Canada
originally also sought to have the Appellate Body make certain rulings
with respect to the Vilsack letter, Canada withdrew these requests
following the United States' assertion that this measure had been
withdrawn.
The Appellate Body upheld, albeit for different reasons, the
Panel's finding that the COOL measure violates Article 2.1 of the TBT
Agreement by according less favorable treatment to imported Canadian
cattle and hogs than to like domestic cattle and hogs. The Appellate
Body reversed the Panel's finding that the COOL measure violates
Article 2.2 of the TBT Agreement because it does not fulfil its
legitimate objective of providing consumers with information on origin,
and was unable to complete the legal analysis and determine whether the
COOL measure is more trade restrictive than necessary to meet its
objective.
In its analysis under Article 2.1 of the TBT Agreement, the
Appellate Body agreed with the Panel that the COOL measure has a
detrimental impact on imported livestock because its record-keeping and
verification requirements create an incentive for processors to use
exclusively domestic livestock, and a disincentive against using like
imported livestock. The Appellate Body found, however, that the Panel's
analysis was incomplete because the Panel did not go on to consider
whether this de facto detrimental impact stems exclusively from a
legitimate regulatory distinction, in which case it would not violate
Article 2.1.
In its own analysis, the Appellate Body found that the COOL measure
lacks even-handedness because its record-keeping and verification
requirements impose a disproportionate burden on upstream producers and
processors of livestock as compared to the information conveyed to
consumers through the mandatory labeling requirements for meat sold at
the retail level. That is, although a large amount of information must
be tracked and transmitted by upstream producers for purposes of
providing consumers with information on origin, only a small amount of
this information is actually communicated to consumers in an
understandable or accurate manner, including because a considerable
proportion of meat sold in the United States is not subject to the COOL
measure's labeling requirements at all. Accordingly, the detrimental
impact on imported livestock cannot be said to stem exclusively from a
legitimate regulatory distinction, and instead reflects discrimination
in violation of Article 2.1. For these reasons, the Appellate Body
upheld the Panel's finding under Article 2.1.
In its analysis under Article 2.2 of the TBT Agreement, the
Appellate Body found that the Panel properly identified the objective
of the COOL measure as being ``to provide consumer information on
origin'', and did not err in concluding that this is a ``legitimate''
objective. The Appellate Body found, however, that the Panel erred in
its interpretation and application of Article 2.2. This was because the
Panel appeared to have considered, incorrectly, that a measure could be
consistent with Article 2.2 only if it fulfilled its objective
completely or exceeded some minimum level of fulfillment, and to have
ignored its own findings, which demonstrated that the COOL measure does
contribute, at least to some extent, to achieving its objective. The
Appellate Body therefore reversed the Panel's finding that the COOL
measure is inconsistent with Article 2.2, but was unable to determine
whether the COOL measure is more trade restrictive than necessary to
fulfil a legitimate objective within the meaning of Article 2.2.
As the conditions on which Canada's appeals with respect to
Articles III:4 and XXIII:1(b) of the GATT 1994 were made were not
satisfied, the Appellate Body made no findings under these provisions.
At its meeting on 23 July 2012, the DSB adopted the Appellate Body
report and the panel report, as modified by the Appellate Body report.
Findings of the Compliance Panel with Respect to the Challenge by
Canada and Mexico that the Revised U.S., Cool Regulation
Complies with the Dispute Settlement Body Recommendations
The compliance panel found that the amended COOL measure violates
Article 2.1 of the TBT Agreement because it accords to Canadian and
Mexican livestock less favourable treatment than that accorded to like
U.S. livestock. In particular, the compliance panel concluded that the
amended COOL measure increases the original COOL measure's detrimental
impact on the competitive opportunities of imported livestock in the
U.S. market, because it necessitates increased segregation of meat and
livestock according to origin; entails a higher record-keeping burden;
and increases the original COOL measure's incentive to choose domestic
over imported livestock. Further, the compliance panel found that the
detrimental impact caused by the amended COOL measure does not stem
exclusively from legitimate regulatory distinctions. In this regard,
the compliance panel followed the approach of the Appellate Body in the
original dispute by taking into account the amended COOL measure's
increased record-keeping burden, new potential for label inaccuracy,
and continued exemption of a large proportion of relevant products.
These considerations confirmed that, as with the original COOL measure,
the detrimental impact caused by the amended COOL measure's labeling
and record-keeping rules could not be explained by the need to convey
to consumers information regarding the countries where livestock were
born, raised, and slaughtered.
The compliance panel determined that the complainants had not made
a prima facie case that the amended COOL measure is more trade
restrictive than necessary within the meaning of Article 2.2 of the TBT
Agreement. In reaching this conclusion, the compliance panel found that
the amended COOL measure makes a considerable but, given the exemptions
from coverage, necessarily partial contribution to its objective of
providing consumer information on origin.
The compliance panel further found that the amended COOL measure
had increased the ``considerable degree of trade-restrictiveness''
found in the original dispute. The compliance panel also assessed the
risks non-alignment of the objective would create in terms of consumer
interest in, and willingness to pay for, different types of country-of-
origin information. Additionally, the compliance panel reviewed four
alternative measures proposed by the complainants and concluded that
either they would not make an equivalent contribution to the relevant
objective as the amended COOL measure would, or they were not
adequately identified so as to enable meaningful comparison with the
amended COOL measure. As a result, the compliance panel was not able to
conclude that the amended COOL measure is more trade restrictive than
necessary in the light of the proposed alternative measures.
The compliance panel found that the amended COOL measure violates
Article III:4 of the GATT 1994 based on its finding that the amended
COOL measure increases the original COOL measure's detrimental impact
on the competitive opportunities of imported livestock in comparison
with like U.S. products. In this regard, the compliance panel relied on
the same considerations that informed its finding of detrimental impact
under Article 2.1 of the TBT Agreement. However, consistent with
Appellate Body jurisprudence, it was not necessary in order to find a
violation under Article III:4 of the GATT 1994 for the compliance panel
to determine whether the detrimental impact stemmed exclusively from
legitimate regulatory distinctions.

The Chairman. Thank you, Mr. Weber.
Mr. Wenk.

STATEMENT OF CHRISTOPHER W. WENK, EXECUTIVE
DIRECTOR OF INTERNATIONAL POLICY, U.S. CHAMBER OF COMMERCE,
WASHINGTON, D.C.

Mr. Wenk. Chairman Rouzer, Members of the Subcommittee, the
U.S. Chamber is taking part in today's important hearing as co-
chair, alongside the NAM (National Association of
Manufacturers) of the COOL Reform Coalition. Launched 1 year
ago, the COOL Reform Coalition includes companies and
associations from a wide variety of sectors, including
agriculture, agrifood and manufacturing that are advocating for
U.S. compliance with obligations it has undertaken in the WTO
agreements relating to the topic of this hearing.
COOL requirements are common and are often fully compatible
with WTO agreements; however, an unambiguous series of rulings
by WTO panels has recognized the U.S. COOL rule for muscle cuts
of meat imposes real economic costs on the meat industry by
forcing segregation of cattle and hogs, and requiring costly
tracking systems and record-keeping. By imposing new costs
exclusively on Canadian and Mexican producers has a
discriminatory trade impact. This dispute has been unfolding
for years and is now entering its final stage.
Why does this matter? Canada and Mexico are by far the
largest markets for U.S. exports. Trade with our neighbors has
reached $1.3 trillion annually. U.S. merchandise exports to
Canada and Mexico rose by 66 percent over the past 5 years,
topping $550 billion last year.
As noted, the COOL Reform Coalition is seeking U.S.
compliance with its obligation under the WTO agreements. Our
coalition is building on years of work by a variety of
organizations representing ranchers, farmers, and food and
agriculture businesses impacted by the COOL rule for muscle
cuts of meat. Broad industry groups such as the Chamber have
joined the debate over COOL to signal our concern about the
broad impact retaliation could have on a wide variety of
industries, including many well removed from agriculture. The
Governments of Canada and Mexico have indicated they are fully
prepared to proceed with WTO authorized retaliation against
U.S. exports of agricultural, agrifood, and manufactured goods
as soon as this summer, pending the outcome of the final
appeal.
WTO-authorized retaliation by these two vital trading
partners could result in billions of dollars of losses across
multiple sectors. Many U.S.-made products will be subject to
the steep tariffs that would effectively bar them from Canadian
and Mexican markets.
A consensus has emerged that Congressional action is
required to avert retaliation, and time for Congress to do so
is running out. The WTO appellate body will release its final
ruling no later than May 18, at which time it will be made
public. Expert opinion is unanimous. This last ruling will
confirm the U.S. is violating obligations it has undertaken as
the member of the WTO. Over the past several years, the avenues
open to the United States to avoid retaliation have dwindled.
Our coalition proposed and advocated for several approaches,
which are no longer feasible. Given the period of as little as
60 days between the announcement of the final ruling in May,
and retaliation by Canada and Mexico, the only way to avert
costly retaliation is for Congress to approve legislation
repealing the COOL rule for muscle cuts of meat. For these
reasons, the Chamber strongly urges Congress to move swiftly to
approve legislation repealing the COOL requirements for muscle
cuts of meat due to the imminent and all but certain adverse
ruling by the WTO appellate body in May. Failure to do so would
cost tens of thousands of American jobs, and jeopardize
mutually beneficial trade relationships with our two closest
neighbors and largest export markets.
The U.S. Chamber of Commerce and members of the COOL Reform
Coalition appreciate the Committee's attention to this vital
matter, and look forward to working with this Committee to
reach this goal.
Thank you for the opportunity to testify today.
[The prepared statement of Mr. Wenk follows:]

Prepared Statement of Christopher W. Wenk, Executive Director of
International Policy, U.S. Chamber of Commerce, Washington, D.C.
The U.S. Chamber of Commerce is the world's largest business
federation representing the interests of more than three million
businesses of all sizes, sectors, and regions, as well as state and
local chambers and industry associations.
More than 96% of Chamber member companies have fewer than 100
employees, and many of the nation's largest companies are also active
members. We are therefore cognizant not only of the challenges facing
smaller businesses, but also those facing the business community at
large.
Besides representing a cross-section of the American business
community with respect to the number of employees, major
classifications of American business--e.g., manufacturing, retailing,
services, construction, wholesalers, and finance--are represented. The
Chamber has membership in all 50 states.
The Chamber's international reach is substantial as well. We
believe that global interdependence provides opportunities, not
threats. In addition to the American Chambers of Commerce abroad, an
increasing number of our members engage in the export and import of
both goods and services and have ongoing investment activities. The
Chamber favors strengthened international competitiveness and opposes
artificial U.S. and foreign barriers to international business.
Positions on issues are developed by Chamber members serving on
committees, subcommittees, councils, and task forces. Nearly 1,900
businesspeople participate in this process.
On the occasion of this hearing of the House Agriculture Committee
on ``the implications of potential retaliatory measures taken against
the United States in response to meat labeling requirements,'' I am
pleased to testify on behalf of the U.S. Chamber of Commerce and our
members. The Chamber is the world's largest business federation,
representing the interests of more than three million businesses of all
sizes, sectors, and regions, as well as state and local chambers of
commerce and industry associations.
The Chamber is taking part in today's hearing as co-chair--
alongside the National Association of Manufacturers (NAM)--of the COOL
Reform Coalition. Launched 1 year ago, the COOL Reform Coalition
includes companies and associations from a wide variety of sectors--
including agriculture, agrifood, and manufacturing--that are advocating
for U.S. compliance with obligations it has undertaken in the World
Trade Organization (WTO) agreements relating to the topic of this
hearing.
Country-of-origin labeling (COOL) requirements are common, and as
promulgated in many countries and for many products, they are often
fully compatible with the World Trade Organization (WTO) agreements. At
least 70 countries have some kind of country-of-origin labeling
requirement. In the United States, mandatory COOL rules require most
retailers to provide country-of-origin labeling for fresh fruits and
vegetables, fish, shellfish, peanuts, pecans, macadamia nuts, ginseng,
meat and poultry.
The dispute under discussion today only involves muscle cuts of
meat. It arose because, 2 decades after the North American Free Trade
Agreement (NAFTA) entered into force, U.S. meat producers and their
counterparts in Canada and Mexico have come to treat North America as
an integrated market--just as U.S. manufacturers do.
It often makes good economic sense for cattle to be born, raised,
and slaughtered in different places across the continent--north or
south of the 49th parallel, or north or south of the Rio Grande. Taking
these realities into account, the WTO has recognized the U.S. COOL rule
for muscle cuts of meat imposes real economic costs on the meat
industry by forcing segregation of cattle and hogs and requiring costly
tracking systems and record keeping. These costs are real, and they
make labeling requirements for meat different than for, say, almonds or
apples, which are grown in one spot.
The WTO Dispute
This dispute has been unfolding for years, and it is now entering
its final stage. The COOL rule for muscle cuts of meat is required by
the 2002 Farm Bill as amended by the 2008 Farm Bill. In late 2009, less
than 1 year after the COOL rule for muscle cuts of meat took effect,
Canada and Mexico began the process of challenging it at the WTO. They
argued that COOL reduces the value and number of cattle and hogs
shipped to the U.S. market; by imposing new costs exclusively on
Canadian and Mexican producers, it has a discriminatory, trade-
distorting impact.
In July 2012, the WTO Dispute Settlement Body adopted an Appellate
Body ruling that the COOL rule for muscle cuts of meat violated the WTO
Technical Barriers to Trade (TBT) Agreement because it treats imported
Canadian cattle and hogs, and imported Mexican cattle, less favorably
than domestic livestock.
A deadline of May 23, 2013, was set for the U.S. Department of
Agriculture (USDA) to bring U.S. regulations into alignment with
obligations the United States has undertaken in the WTO agreements. On
that date, USDA published a revised rule. Government officials of both
Canada and Mexico stated that the revisions were inadequate. On
September 25, 2013, Canada and Mexico requested the establishment of a
compliance panel to determine whether the revised rule is compliant
with obligations the United States has undertaken in the WTO
agreements.
On October 20, 2014, a WTO compliance panel report again found the
United States had failed to comply with its WTO obligations. In fact,
it found the revised rule was even more discriminatory than the earlier
version. The following month, the United States appealed this decision,
and the WTO Appellate Body expects to circulate its ruling on the
appeal no later than May 18, at which time it will be made public.
In other words, the end of this long and winding road is within
sight. The pain for U.S. agriculture and industry, however, could be
just beginning.
Trade with Canada, Mexico is Vital to U.S.
The importance of the U.S. trade relationship with Canada and
Mexico for American workers, farmers, ranchers, and companies of all
kinds is worth bearing in mind. A trade dispute with a minor commercial
partner can be damaging; a trade dispute with the two largest markets
for U.S. exports could be highly damaging. Consider the dimensions of
our economic ties to Canada and Mexico today:
Trade
Since the North American Free Trade Agreement (NAFTA)
entered into force in 1994, trade with Canada and Mexico has
risen nearly fourfold to $1.28 trillion in 2013, and the two
countries buy about \1/3\ of all U.S. merchandise exports.

The trade boom continues. U.S. merchandise exports to Canada
and Mexico rose by 66% over the past 5 years, reaching $552
billion in 2014. In fact, our North American neighbors provided
39% of all growth in U.S. merchandise exports in the 2009-2014
period.

Canada (population 36 million) again edged the EU
(population 500 million) as the top market for U.S. goods
exports in 2014. U.S. merchandise exports to Mexico (population
125 million) were nearly double those to China (population 1.4
billion), which is the third largest national market for U.S.
exports.

In fact, the United States in 2014 had a trade surplus in
manufactured goods ($21.6 billion (http://www.trade.gov/mas/
ian/build/groups/public/@tg_ian/documents/webcontent/
tg_ian_003368.pdf)) with Canada and Mexico, just as it has for
the past 4 years. In 2013, the U.S. services trade surplus with
Canada and Mexico reached $45 billion (http://www.bea.gov/
itable/). The U.S. remains a significant net importer of
petroleum from its North American neighbors.
Jobs
Trade with Canada and Mexico supports nearly 14 million U.S.
jobs, and nearly 5 million of these net jobs are supported by
the increase in trade generated by NAFTA, according to a
comprehensive economic study (http://www.uschamber.com/reports/
opening-markets-creating-jobs-estimated-us-employment-effects-
trade-fta-partners) commissioned by the U.S. Chamber.

The expansion of trade unleashed by NAFTA supports tens of
thousands of jobs in each of the 50 states and more than
100,000 jobs in each of 17 states, according to the same study.
Manufacturing
Canadians and Mexicans purchased U.S. manufactured goods
valued at $486 billion in 2014, generating more than $40,000 in
export revenue for every American factory worker. To put this
in context, these export earnings are equivalent to about half
the annual earnings--including pay and benefits--of the typical
American factory worker ($77,500).
Agriculture
NAFTA has been a bonanza for U.S. farmers and ranchers. U.S.
agricultural exports to Canada and Mexico rose by nearly 50%
between 2007 and 2013, increasing from $27 billion to nearly
$40 billion. Canada was the largest agricultural export market
of the United States until it was overtaken by China in 2013,
and U.S. agricultural exports to Mexico have quintupled since
NAFTA entered into force.
Services
With new market access afforded by NAFTA, U.S. services
exports to Canada and Mexico have tripled, rising from $27
billion in 1993 to $93 billion in 2013. Among the services
industries that are benefiting are: audiovisual; finance;
insurance; transportation, logistics, and express delivery
services; and software and information technology services.
Small Businesses
Canada and Mexico are the top two export destinations for
U.S. small- and medium-size enterprises, more than 125,000 of
which sold their goods and services in Canada and Mexico in
2011 (latest available).
The Consequences of Noncompliance
As noted, the COOL Reform Coalition is seeking U.S. compliance with
its obligations under the WTO agreements. Our coalition is building on
years of work by a variety of organizations representing ranchers,
farmers, and food and agriculture businesses impacted by the COOL rule
for muscle cuts of meat.
Broad industry groups such as the Chamber have joined in the debate
over COOL to signal our concern about the broad impact retaliation
could have on a wide variety of industries, including many well removed
from agriculture. The governments of Canada and Mexico have indicated
they are fully prepared to proceed with WTO-authorized retaliation
against U.S. exports of agricultural, agrifood, and manufactured goods
as soon as this summer, pending the outcome of the final appeal.
WTO-authorized retaliation by these two vital U.S. trading partners
could result in losses in the billions of dollars across multiple
sectors including, but not limited to, food production, agriculture,
and manufacturing. Many U.S.-made products would be subjected to steep
tariffs that would effectively bar them from the Canadian and Mexican
markets. As noted, the stakes are especially high because these are by
far our largest export markets.
Our coalition website (www.COOLReform.com) offers a map that shows
the products likely to face retaliation and the states where these
agricultural and manufactured goods are produced. It is based on
information provided by the governments of Canada and Mexico,
indicating their explicit intentions to retaliate should the United
States fail to comply with its trade obligations, driving home the
potential cost to communities all across the United States.
Earlier experiences underscore how painful retaliation could be for
American workers, farmers, and companies. After a dispute settlement
panel ruled in Mexico's favor in the cross-border trucking dispute
several years ago, Mexico levied steep retaliatory duties on $2.4
billion worth of U.S. goods. The impact was devastating for tens of
thousands of American workers and farmers. Many of the same products
are likely to be targeted in the event retaliation goes forward in the
COOL dispute.
One prominent COOL supporter told a recent press conference that
``undoubtedly the result of [an] appeal is going to be somewhat
different'' from the October ruling. He further said ``there is strong
legal standing to resolve the dispute,'' and he said the United States
``may win on appeal.''
This is highly unlikely. Not only have WTO panels issued multiple
adverse rulings, the most recent WTO panel report finds the United
States has violated not just one but two agreements--the bedrock GATT
1994 agreement, which is the cornerstone of the WTO and the global
rules-based trading system, and the TBT agreement. As noted, the report
found the latest, revised version of the COOL rule was even more
discriminatory than its predecessor. In any event, there will be no
denying the immediacy of the problem when the final ruling is released
within approximately 8 weeks.
The U.S. Must Meet its WTO Obligations
It is clearly in the long-term economic interests of the United
States to comply with the rules of the international trading system.
After all, our country did more than any other to write these rules,
from the General Agreement on Tariffs and Trade in 1947 to the creation
of the WTO in 1995.
A host of studies shows the United States derives tremendous
benefits from the open international trading system. One widely cited
study shows that trade liberalization under these rules has boosted the
income of the average American household by about $10,000 annually.
As a nation, the United States flaunts its obligations under the
rules-based trading system at our peril. Since the WTO was created in
1995, other countries have brought a number of disputes against the
United States to the WTO, and the United States has lost a number of
these. The United States has always (eventually) amended its laws or
changed its practices to conform to these adverse rulings. The United
States has done so because it is in the country's interest to do so.
Further, American workers, farmers, and companies rely on these
rules to secure access to overseas markets. Just a few months ago, a
WTO panel ruled against India in a dispute brought by the United States
relating to Indian restrictions on the importation of U.S. agricultural
products. As U.S. Trade Representative Michael Froman said at the time:
``This victory affirms the Administration's commitment to ensuring WTO
Members play by the rules, and that America's farmers, workers and
businesses get the fair shot they deserve to sell Made-in-America goods
under WTO rules.''
Today, the shoe is on the other foot. More than 95% of the world's
consumers live outside our markets, but American farmers, workers, and
companies will not be able to sell their goods and services to those
consumers if we fail to live up to these rules ourselves.
The Goal of the Coalition
A consensus has emerged that Congressional action is required to
avert retaliation, and time for Congress to do so is running out. The
WTO Appellate Body has announced it will circulate its ruling on the
final U.S. appeal no later than May 18. WTO-authorized retaliation by
Canada and Mexico could be authorized as soon as 60 days thereafter.
As we learned in the U.S.-Mexico cross-border trucking dispute,
export sales of products targeted for retaliation can be lost even
before authorized retaliation goes into effect. Sourcing managers
planning future purchases will take into account likely retaliation and
shift to vendors in other jurisdictions in response to the mere
possibility of higher tariff-related costs in their supply chains. Once
these sourcing relationships are lost, it can be years for companies to
recover lost market share.
Over the past several years, the avenues open to the United States
to avoid retaliation have dwindled. Our coalition proposed and
advocated for several approaches which are no longer feasible. Given
the period of as little as 60 days between the announcement of the
final ruling in May and retaliation by Canada and Mexico, the only way
to avert costly retaliation is for Congress to approve legislation
repealing the COOL rule for muscle cuts of meat.
For these reasons, the Chamber strongly urges Congress to move
swiftly to approve legislation repealing the COOL requirements for
muscle cuts of meat due to the imminent and all-but-certain adverse
ruling by the WTO Appellate Body in May. Failure to do so could cost
tens of thousands of American jobs and jeopardize mutually beneficial
trade relationships with our two closest neighbors and largest export
markets.
The U.S. Chamber of Commerce and members of the COOL Reform
Coalition appreciate the Committee's attention to this vital matter and
look forward to working with the Committee to reach this goal.

The Chairman. Mr. Johnson.

STATEMENT OF ROGER JOHNSON, PRESIDENT, NATIONAL FARMERS UNION,
WASHINGTON, D.C.

Mr. Johnson. Thank you, Mr. Chairman, for the opportunity
to testify on County-of-Origin Labeling, and the status of the
WTO dispute.
U.S. producers overwhelmingly support COOL. They are proud
of what they produce. Consumers demand more and more
information about the food that they purchase.
In July of 2013, AMI, NCBA, NPPC, and others representing
meatpackers, went to court to block USDA's revised COOL rule.
The packers essentially argued that their First Amendment right
to free speech included their right to not tell consumers what
they didn't want consumers to know. Ultimately, courts found in
favor of USDA and in favor of the COOL label.
Now, as to the WTO dispute, USDA issued a final rule to
implement COOL in 2009. Canada and Mexico challenged that law
and rules of the WTO, claiming that COOL created a trade-
distorting impact by reducing the value and number of cattle
and hogs shipped to the U.S. In 2011, the WTO dispute
settlement body found that COOL does not provide enough
accurate information to consumers, objecting to commingling and
to confusing language. The appellate body also found that the
objective of COOL was, in fact, legitimate under WTO rules. The
appellate body finally found that record-keeping and
verification requirements were disproportionate with the
information conveyed to consumers.
In response, 2 years ago, USDA changed the rules to require
labels that show each production step and prohibited
commingling. Canada appealed, and WTO, last October, found that
the revised rule improved the amount of information to
consumers, but still required collection of too much
information. The panel also noted that COOL was the least
trade-restrictive measure to achieve the objectives of consumer
disclosure. Both Canada and the U.S. subsequently appealed.
Its ruling is now expected in May 18. Given the narrowing
of the scope of the issues in each successive WTO decision, it
is entirely feasible that the appellate body may rule in favor
of the U.S. If the body rules against the U.S., the WTO process
provides for arbitration, after which potential sanctions could
be authorized. In that case, a recent study by Auburn
University's Dr. Taylor is important because it concludes that
Canadian and Mexico beef producers suffered no damage as a
result of COOL. That study is attached to my testimony.
Canada has been threatening retaliation, as we all know.
Dr. Taylor, however, using mandatory price reporting data
reported by the meatpackers, recently found that ``COOL did not
directly cause the declines in livestock exports to the U.S.,
which largely coincided with the substantial economic downturn
that sapped demand for more expensive meat products.'' The
report issued three main and substantial findings. First, fed-
cattle prices basis actually declined after COOL went into
effect, meaning Canadian cattle producers and U.S. cattle
producers received the same price for the same product after
COOL as before COOL. Second, COOL did not negatively impact
imports of slaughter cattle. And third, COOL did not
significantly affect imports of feeder cattle.
Dr. Taylor's study was very robust, and directly
contradicts the study that the Canadians had entered into the
WTO record using proprietary data that is, frankly, not
publicly available. The robust study conducted by Dr. Taylor
demonstrates that Canada and Mexico's argument of restricted
market access to the U.S. market as a result of COOL is simply
not true. Importation of cattle from other markets is subject
to a number of other variables that are independent of COOL.
COOL has not had a negative impact on the Canadian industry.
This study is extremely important when assessing retaliatory
claims made by Canada and Mexico.
I would urge you to wait until we get a final decision from
the WTO before any legislation is considered.
Thank you.
[The prepared statement of Mr. Johnson follows:]

Prepared Statement of Roger Johnson, President, National Farmers Union,
Washington, D.C.
Introduction
On behalf of family farmers, ranchers, and rural members of
National Farmers Union (NFU), thank you for the opportunity to testify
regarding the Country-of-Origin Labeling (COOL) law and the results of
the pending World Trade Organization (WTO) dispute. NFU was organized
in Point, Texas in 1902 with the mission of improving the well-being
and economic opportunity for family farmers, ranchers, and rural
communities through grassroots-driven advocacy. That mission still
drives NFU's work today. As a general farm organization, NFU represents
agricultural producers across the country and in all segments of the
livestock industry, including many cow/calf operators. The U.S. has the
largest fed-cattle industry in the world and the largest production of
high-quality, grain-fed beef. More than 35 percent of farm operations
in the U.S. are classified as beef cattle operations.\1\
---------------------------------------------------------------------------
\1\ USDA 2012 Census of Agriculture.
---------------------------------------------------------------------------
Although Congress passed the first COOL laws for food in the 2002
Farm Bill, labeling laws have existed in the U.S. since 1890. Tariff
laws have required nearly all imports to display labels so that the
consumer can identify the country-of-origin. For over 100 years, most
agricultural commodities were excluded from the labeling laws. For
decades, both consumers and farm organizations such as NFU have
advocated that imported food ought to display the country-of-origin
just like nearly every other product imported into the U.S. Farmers and
ranchers support COOL because they are proud of the fruits, vegetables,
nuts, and meat they produce. Consumers demand more and more information
about the food they purchase and COOL gives them one more tool to make
informed decisions. Over 10 years of consumer polling demonstrates that
the vast majority of consumers want country-of-origin labels (Appendix
A).
Since well before passage of the law or implementation of the first
label, COOL has had its critics including those who filed a lawsuit in
the U.S. District Court for the District of Columbia. In July of 2013,
the American Meat Institute, the National Cattlemen's Beef Association
and the National Pork Producers Council and several other trade
associations representing meatpackers and feedlot operators went to the
courts in an attempt to block USDA's revised COOL rule. They challenged
the labels were a violation of the COOL statute and their First
Amendment rights. Despite the vast consumer support and the long
history of origin labels, the meat industry argued that their First
Amendment right to free speech included their right not to tell
consumers what they did not want consumers to know! Ultimately, the
District Court, a three-judge panel of the D.C. Circuit Court, and the
en banc court all found in favor of USDA and the COOL label. Earlier
this year, the North American Meat Institute agreed to drop the lawsuit
after the D.C. Circuit Court denied their petition for a rehearing on
the statutory claim.
WTO Dispute
In 2009, the U.S. issued a final rule to implement COOL as directed
by the 2008 Farm Bill. The regulations resulted in labels that were
misleading and confusing, such as ``Product of U.S., Canada'' or
``Product of Canada, U.S.'' NFU and many others supported a more
detailed and accurate label that included information on where the
animal was born, raised, and slaughtered. Prior to implementation of
the final rule, Canada and Mexico challenged the law and interim
regulations at the WTO claiming that COOL was inconsistent with the
U.S.'s trade obligations by creating a trade-distorting impact by
reducing the value and number of cattle and hogs shipped to the U.S.
COOL implementation occurred just as the economy entered the Great
Recession. Many factors influenced the cattle industry, outside of
agriculture, including the value of the dollar as compared to the
loony, large decreases in household incomes and consumer uncertainty.
Income constrained consumers eat less beef and pork. In fact, price
elasticity is one of the highest for any single food category;
consumers are more sensitive to changes in beef prices as compared to
other food products.
In 2011, the Dispute Settlement Body issued its report. The panel
found that the COOL measure does not fulfil its legitimate objective of
providing consumers with information on origin under Article 2.2
because the label did not provide enough information to consumers
regarding the country-of-origin, which was later overturned by the
Appellate Body. The label did not provide enough information on each
production step because the label allowed for commingling and was
needlessly confusing.
In 2012, the U.S. and Canada appealed certain issues covered in the
panel report to the WTO Appellate Body. The Appellate Body found that
the objective of COOL was, in fact, legitimate under WTO rules. This
Appellate Body decision thus narrowed the scope of noncompliance with
U.S. WTO obligations. The Appellate Body found that the record-keeping
and verification requirements were disproportionate with the
information conveyed to consumers on labels. All of the information
that was required to be tracked was not communicated to consumers in an
understandable manner or was inaccurate altogether. The costs of the
regulation exceeded the benefit from disclosure in large part because
the labels were so poor at communicating the information that was
tracked by packers. Warnings of segregation costs have been massively
overstated. Packers already have many tracking requirements including
marketing traits such as Angus or grass-fed, USDA grades, and food
safety.
In response to the WTO findings, the U.S. Department of Agriculture
(USDA) made changes to the COOL requirements to comply with the WTO
requirements. This included requiring labels that show each production
step and prohibited the commingling of muscle cuts of meat from
different origins. This provided much more specific and accurate
information to consumers. After implementation of the revised final
rule, Canada requested the establishment of a compliance panel.
The compliance panel report was distributed in October of 2014. The
panel found that the revised rule resulted in an improvement in the
amount of information that was conveyed to consumers, but the remaining
exemptions and the lack of precision for labeling of meat from animals
with origins from more than one country meant the COOL measures still
required collection of more information than what was distributed to
consumers. The panel also noted that COOL was the least trade
restrictive measure to achieve the objectives of consumer disclosure.
Both Canada and the U.S. have appealed the compliance panel report
to the Appellate Body. The Appellate Body is expected to issue its
ruling by May 18. Given the narrowing of the scope of issues with the
COOL measure, it is entirely feasible that the Appellate Body may rule
in favor of the U.S. Once the WTO Appellate Body issues its report, and
only at that time, would any governmental or legislative action be
appropriate.
Once the WTO Appellate Body issues its report, the WTO dispute
resolution process has another phase for arbitrations. Arbitration must
be completed within 60 days of the report. Only after the arbitration
phase would sanctions be authorized. Arguments would be heard by the
arbitrator regarding the extent of the damages. Canada and Mexico would
be required to prove the extent to which they suffered damages from
market access restrictions, at which point their claims of $1 to $2
billion would be heavily scrutinized.
Critics of COOL, including the Canadian Government, have pressured
Congress for reform of the law. Yet under the guise of reform, they
have pushed for repeal of all or portions of the law that have no
bearing on the WTO dispute, such as removing labels from chicken. As
critics of the law have continued to point out, the U.S. has agreed to
abide by the obligations of the WTO agreement. As the WTO dispute
resolution process is still very much underway, Congressional action is
not required at this time. It is highly unconventional for Congress to
intervene in the WTO process until the WTO issues its final decision.
Economic Analysis on Impacts to Cattle Industry
Given Canada's shocking estimates of authorized retaliation, C.
Robert Taylor, PhD, Alfa Eminent Scholar at Auburn University, analyzed
Mandatory Price Reporting (MPR) data, which is required to be reported
by the meatpackers. Dr. Taylor conducted a longitudinal, multivariate
econometric analysis (Appendix B). His analysis found that, ``COOL did
not directly cause the declines in livestock exports to the United
States, which largely coincided with a substantial economic downturn
that sapped demand for more expensive meat products.'' The report
issued three main and substantial findings: (1) Fed cattle price basis)
declined after COOL went into effect (meaning Canadian cattle producers
and U.S. cattle producers received the same price for the same product
after COOL as before COOL; (2) COOL did not negatively impact imports
of slaughter cattle; and (3) COOL did not significantly affect imports
of feeder cattle.
The study used more robust data sources than the reports submitted
to the WTO by Daniel Sumner, PhD, and Sebastien Pouliot, PhD. Sumner
and Pouliot used proprietary data provided to them by the Canadian
Cattlemen's Association, a staunch opponent of COOL. Dr. Taylor's
analysis used the same metrics of cattle exports' market access as the
Sumner and Pouliot studies, including the difference between Canadian
and U.S. cattle prices, the share of imported cattle processed in U.S.
slaughterhouses, and the share of Canadian feeder cattle placed on U.S.
feedlots. Each of these indicators was analyzed qualitatively and
econometrically using MPR data and monthly trade statistics. The
econometric analysis was much more robust, providing conclusive
evidence that the previous analysis done had reached erroneous
conclusions. The analysis addressed omitted variable bias and model
specification limitations. The Sumner and Pouliot analyses failed to
account for comparable cattle purchase arrangement techniques
(negotiated purchase, captive supplies, and packer-owned cattle).
Sumner and Pouliot also failed to compare cattle of similar grades.
Fed Cattle Price Basis Declined After COOL Went Into Effect
The weekly MPR data showed that the price basis was generally lower
by class, grade, and purchase arrangement after COOL implementation
than the previous 4 years (Appendix B). If the claims of substantial
segregation costs for COOL compliance rang true, the industry would
expect to see an increase in the price basis after COOL went into
effect. Table 1 of the report (Appendix [D]) shows the price basis by
class, grade, and purchase arrangement before and after COOL
implementation computed as paired averages. Due to the differences in
purchase arrangements domestically and in Canada, comparisons must
include analysis of the types of purchase arrangements. Imported
slaughter cattle are often purchased under a forward contract, but
domestic acquisitions are usually under formula arrangements or the
cash market. The weekly prices received for imported and domestic
slaughter steers and heifers averaged over all grades and purchase
arrangements generally moved together (small basis) except for in 2008
and 2009 when import prices were well above domestic prices and in 2011
and 2014 when import prices were well below domestic prices. The
differences are not due to COOL, but rather are due to different
arrangements dominating domestic and import slaughter cattle purchases.
For instance, forward contracts accounted for 54 percent of imports,
but only eight percent of domestic slaughter over the past 10 years.
COOL Did Not Negatively Impact Imports of Slaughter Cattle
Sumner and Pouliot reported finding that COOL negatively impacted
imports of slaughter cattle, but in statistical terms, this finding is
not robust. Their model suffered from omitted variable bias and
confounded results. Taylor reports that with the addition of weekly
captive supply and more observations dating back to 1995 (to account
for the ban due to Bovine spongiform encephalopathy), the results of
the Sumner and Pouliot regression gives statistically insignificant
results. Taylor's finding is more robust than the Sumner and Pouliot
finding. Including captive supplies of both domestic and foreign
slaughter cattle is necessary because studies have shown that captive
supplies have a negative effect on acquisition price, which could
impact the number of head slaughtered. Additionally, captive supplies
may directly impact trade and confound interpretation of binary
variables (such as COOL) in econometric models.
COOL Did Not Significantly Affect Imports of Feeder Cattle
Because feeder cattle are especially responsive to changes in
weather, economic conditions and lifecycle variability, numerical
comparisons of imports of feeder cattle is very sensitive to the time
period chosen. In the 3 years prior to full implementation of COOL, an
average of 10,416 feeder cattle were imported monthly to the U.S. Since
that time, the number has fallen to 7,456 feeder cattle imported per
month. Yet, the base for comparison paints a misleading picture. The
average number of imports over 1990 to 2003 was 7,047. Using a similar
model to Sumner and Pouliot, Dr. Taylor found no significant impact of
COOL on either Canadian or Mexican feeder cattle imports. Over the
period from 2013 to 2014, U.S. imports of Canadian feeder cattle are
the highest they have been in 20 years, with the exception of 2001 and
2002 when Alberta suffered an extreme drought, causing a spike in U.S.
imports.
Conclusion
The robust analysis conducted by Dr. Taylor demonstrates that
Canada and Mexico's argument of restricted market access to the U.S.
market as a result of COOL is simply not true. The importation of
cattle from other markets is subject to a number of other variables
that are independent of COOL. COOL has not had a negative impact on the
Canadian cattle industry. This study is extremely important when
assessing the retaliation claims made by Canada and Mexico. If Canada
and Mexico cannot prove damages, they will not be authorized to
retaliate.
Appendix A

Consumers Overwhelmingly Support Country-of-Origin Labeling 2
------------------------------------------------------------------------
Poll Year Question Response
------------------------------------------------------------------------
Fresh Trends 2002 Percent who feel 86%
that fresh
produce items,
packages or
displays should
be labeled to
identify country-
of-origin
\2\ Compiled
by Consumer
Federation of
America.
National 2004 Do you think food 82% Yes
Farmers Union should be labeled
with country-of-
origin
information?
Public Citizen 2005 Do you favor or 85% Favor
oppose requiring
the meat,
seafood, produce
and grocery
industries to
include on food
labels the name
of the country
where the food is
grown or
produced?
Food & Water March 2007 Should the food 82% Required
Watch industry be
required to
provide [country-
of-origin]
information, or
should the food
industry be
allowed to decide
on their own?
Consumers July 2007 Imported foods 92% Agree
Union should be labeled
by the country-of-
origin.
Zogby August 2007 Consumers have a 94% Agree
right to know the
country-of-origin
of the foods they
purchase.
Consumers November 2008 Country-of-origin 95% Agree
Union labeling for
products should
always be
available at
point of
purchase.
Consumers October 2010 Consumers would 93% Agree
Union prefer to have a
country-of-origin
label on the meat
that they buy.
Consumer May 2013 Food sellers 90% Agree
Federation of should be
America required to
indicate on the
package label the
country-of-origin
of fresh meat
they sell.
Food sellers 87% Agree
should be
required to
indicate on the
package label the
country or
countries in
which animals
were born, raised
and processed.
------------------------------------------------------------------------

[Appendix B]
Dr. Robert Taylor's Powerpoint Presentation on Impacts of COOL on
Cattle Trade

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Appendix C
Preliminary Estimates of the Impacts of U.S. Country-of-Origin Labeling
(COOL) on Cattle Trade
C. Robert Taylor
January 13, 2015
Summary
The United States Mandatory Country-of-Origin Labeling (COOL)
regime has not impaired cattle export market access to the United
States. In 2008, the United States enacted and implemented COOL as part
of the 2008 Farm Bill to ensure consumers could know the country-of-
origin of many meat, fruit, vegetable and nut products that they
purchase. This longitudinal multivariate econometric analysis found
that COOL did not directly cause the declines in livestock exports to
the United States, which largely coincided with a substantial economic
downturn that sapped demand for more expensive meat products.
In 2009, Canada and Mexico challenged the COOL provisions related
to muscle cuts of beef and pork as an alleged barrier to trade at the
World Trade Organization for purportedly compromising their export
opportunities and market access to the United States for live cattle
and hogs. According to these countries, the cost of implementing COOL
discouraged U.S. meatpacking and processing companies from purchasing
livestock of non-U.S. origin and, as a result, reduced the prices of
these livestock exports. In response to the WTO dispute, University of
California-Davis professor Daniel Sumner and, in earlier submissions,
with Iowa State University professor Sebastien Pouliot provided
analysis bolstering these contentions (referred collectively as SP).
This study uses more robust data sources to assess the impact of
COOL on market access and found that COOL has not had a significant
negative effect on the price paid for imported slaughter cattle
relative to comparable domestic cattle, COOL has not had a
statistically significant negative effect on imports of feeder cattle
relative to U.S. feeder cattle placements, and COOL has not had a
negative impact on imported cattle for immediate slaughter.
This analysis uses the same metrics of cattle exports' market
access as the SP analyses (including the difference between Canadian
and U.S. cattle prices; the share of imported cattle processed in U.S.
slaughterhouses; the share of Canadian feeder cattle placed on U.S.
feedlots).\3\ Each of these indicators was analyzed qualitatively and
econometrically with weekly Mandatory Price Reporting (MPR) as well as
monthly trade statistics. It also addresses several problems with
omitted variable bias in the SP analysis, especially the failure to
account for comparable cattle purchase arrangement techniques
(negotiated purchases, captive supplies and packer-owned cattle) and
comparing cattle of similar grades. The study uses data from the U.S.
Department of Agriculture (USDA) for Mandatory Price Reporting (MPR)
weekly data (from September 2005 to November 2014), USDA monthly data
(1995 to 2014), USDA/U.S. Census Bureau trade data (1995 to 2014),
monthly CanFax data (of limited availability) and USDA weekly data on
Canadian feeder cattle prices (2005 to 2014).
---------------------------------------------------------------------------
\3\ The three factors in the SP analyses are: (a) the price basis,
defined to be the price received for imported cattle minus the price of
like cattle of domestic origin, (b) the ratio of imported cattle
slaughtered in the U.S. to cattle of domestic origin, and (c) the ratio
of imported feeder cattle to U.S. placements of feeder cattle in
domestic feedlots.
---------------------------------------------------------------------------
Fed Cattle Price Basis Declined after COOL Went Into Effect: COOL
did not increase the price basis for imported slaughter cattle
according to a more thorough analysis of MPR data; in fact, the price
basis is substantially lower in the 6 years since implementation of
COOL than it was the preceding 4 years by class, grade, and purchase
arrangement.
COOL Did Not Negatively Impact Imports of Slaughter Cattle:
Qualitative and econometric analysis of MPR and monthly trade and price
data cast considerable doubt on assertions that COOL negatively
affected imports of slaughter cattle. Econometric results are sensitive
to model specification, estimation technique, and time period. The SP
analyses are subject to omitted variable bias, in part, because it did
not recognize the confounding effects of domestic and imported captive
supply of slaughter cattle, or macroeconomic and beef demand
uncertainty during the time period when COOL was being revised and
implemented.
COOL Did Not Significantly Affect Imports of Feeder Cattle: Using a
comparable model to the SP model specification estimated with USDA
monthly data on imports of 400-700 lb cattle did not show COOL having a
significant negative effect of imports of feeder cattle from either
Canada or Mexico relative to placements in U.S. feedlots.
The weight of credible economic and qualitative evidence
demonstrates that COOL has had no demonstrable impact on the Canadian
or Mexican cattle industries. Moreover, the analysis did not find that
COOL resulted in substantial costs to beef packers, which would have
been seen in lower reported prices. Finally, the robustness of the
study provides more conclusive evidence that the SP analysis on behalf
of the Canadian livestock and packing industry reached erroneous
conclusions due to omitted variable and model specification
limitations, and to disregard of the packers' own transaction data as
reported under MPR.
Introduction
American consumers overwhelmingly support Country-of-Origin
labeling (COOL) to ensure that they know the source of their food.
Farmers want to be able to differentiate their products in an
increasingly international marketplace. This widespread support led to
the enactment and implementation of Mandatory Country-of-Origin
Labeling in the 2008 Farm Bill.\4\
---------------------------------------------------------------------------
\4\ A series of legal and political difficulties have bedeviled
implementation of Country-of-Origin Labeling (COOL) of beef and
selected other food products since U.S. Congress mandated labeling in
the Farm Security Act of 2002 then revised in the Food, Conservation,
and Energy Act of 2008.
---------------------------------------------------------------------------
Canada and Mexico immediately challenged COOL at the World Trade
Organization (WTO) as a barrier to trade and the WTO dispute has
continued since late 2008. In 2013, the United States strengthened the
consumer disclosure on COOL labels to comply with the original WTO
dispute resolution report. It is worth noting that the WTO has
consistently ruled in favor of the legitimacy of the goal of COOL
labeling and that COOL labels serve their intended purpose of informing
U.S. consumers.
Canada and Mexico have contended that the COOL measures (as
originally implemented and as strengthened in 2013) unfairly
discriminated against livestock imports and gave an advantage to
domestic livestock producers and that the compliance costs of COOL
effectively create a barrier to export market access (in both volume
and price of exported livestock). The Canadian Government continues to
allege that the COOL label itself has reduced livestock export market
access to the United States by $1.4 billion annually.\5\
---------------------------------------------------------------------------
\5\ See Tomson, Bill. ``Canada's estimate of COOL damages: $1.4B
per year.'' Politico. December 24, 2014.
---------------------------------------------------------------------------
Key considerations in determination of whether COOL negatively
affected Canada and Mexico's cattle industry are: (a) the price basis,
defined to be the price received for imported cattle minus the price of
like cattle of domestic origin, (b) the ratio of imported cattle
slaughtered in the United States to cattle of domestic origin, and (c)
the ratio of imported feeder cattle to U.S. placements of feeder cattle
in domestic feedlots. This report addresses each of these economic
indicators with a more thorough econometric analysis and finds that
COOL has not impaired livestock market access to the United States.
In a consulting report done for the Canadian Cattlemen's
Association (CCA) and the Canadian government, with Canadian cattle
market data provided by CCA, Sumner and Pouliot and Sumner (SP) found
``significant evidence of differential impacts of COOL through widening
of the price bases and a decline in ratios of imports to total domestic
use for both fed and feeder cattle.'' Veracity of the PS report cannot
be determined because much of the Canadian data on which their
econometric analyses were based is not publicly available, and public
use of the data is controlled by CCA.\6\ This study and subsequent
studies by Sumner (collectively referred to as SP throughout) that
relied on proprietary industry-controlled data were the basis for
Canada's WTO challenge to the U.S. COOL measure. Not only is the data
inaccessible but it was supplied to the authors by an industry group
that is adamantly opposed to COOL and is a plaintiff in a COOL lawsuit
against the USDA.\7\
---------------------------------------------------------------------------
\6\ http://www.canfax.ca/Faqs.aspx.
\7\ See United States Court of Appeals for the District of Columbia
Circuit. No. 13-5281. American Meat Institute, et al. v. USDA, et al.
---------------------------------------------------------------------------
Moreover, SP did not mention, let alone utilize, Mandatory Price
Reporting (MPR) data as reported by U.S. beef packers to the
Agricultural Marketing Service (AMS) of USDA, instead relying largely
on data provided to them by CCA. MPR data are highly detailed,
including origin, import or domestic, of cattle slaughtered in the U.S.
and is thus a statistically and economically rich and robust data set
for analyzing COOL. The time period covered by MPR data covers about 4
years prior to the implementation of the interim final COOL rule on
September 29, 2008, and 6 years since, thus spanning the period in
which COOL was defined, redefined and implemented and came into full
force on March 16, 2009.
Since the MPR information comes directly from the beef packers, the
MPR price and basis trends reflect actual operational slaughter costs
and can definitively shed light on the beef packers' political rhetoric
and repeated public assertions about the costs of COOL to the U.S.
packing industry.
The Difference between Canadian and U.S. Slaughter Cattle Prices (the
Basis) Narrowed After COOL Implementation
The detailed weekly MPR data show that the price basis was
generally lower, not higher, by class, grade, and purchase arrangement
after COOL was implemented in late 2008, compared to the 4 previous
years. The use of the beef packers' own MPR data belie the claims that
the cost of COOL compliance would create substantial segregation
costs.\8\ If these claims were true, the price basis would increase
post-COOL compared to pre-COOL. Instead, the price differential between
imported and domestic steers narrowed significantly since COOL went
into effect after adjusting for inflation and expressed in U.S.
dollars.
---------------------------------------------------------------------------
\8\ http://www.meatami.com/ht/a/GetDocumentAction/i/87821.
---------------------------------------------------------------------------
Table 1 shows the basis by class, purchase arrangement, and grade
before and after COOL, computed as paired \9\ averages. As can be seen,
the basis declined for most of these categories after COOL was
implemented. Categories in which the basis widened accounted for less
than 15% of recorded import slaughter. Adjusted for inflation, the
post-COOL basis changes shown in Table 1 would be even smaller compared
to pre-COOL averages.
---------------------------------------------------------------------------
\9\ Paired comparison means that averages were computed only for
weeks in which there was a domestic and an import transaction recorded
in a category. There were many weeks in which no negotiated cash
transactions were reported for imported slaughter cattle.

Table 1. Price Basis by Purchase Arrangement, Grade and Class, Paired
Comparisons Before and After Full Implementation of COOL, MPR Data, U.S.
Dollars/cwt Dressed Weight
------------------------------------------------------------------------
Before COOL After COOL
Purchase (weeks ending 9/ (weeks ending 11/
Class Arrangement Grade 5/2005- 10/29/ 6/2008- 1/12/
2008) 2015)
------------------------------------------------------------------------
Steer Formula Net 0-35% ^$2.49 $0.23
Choice
35-65% ^$3.26 ^$2.14
Choice
65-80% ^$4.60 ^$3.78
Choice
Over 80% ^$7.26 ^$6.90
Choice
Forward 0-35% ^$2.91 ^$2.47
Contract Net Choice
35-65% ^$3.96 ^$3.30
Choice
65-80% ^$4.63 ^$3.80
Choice
Over 80% ^$5.47 ^$3.01
Choice
Negotiated Grid 0-35% $1.76 ^$1.43
Net Choice
35-65% $0.57 ^$1.03
Choice
65-80% $0.14 ^$1.67
Choice
Over 80% ^$1.54 ^$2.71
Choice
------------------------------------------------------------------------
Heifer Formula Net 0-35% ^$1.59 ^$0.03
Choice
35-65% ^$2.86 ^$1.70
Choice
65-80% ^$4.51 ^$2.81
Choice
Over 80% ^$6.89 ^$4.84
Choice
Forward 0-35% ^$4.91 ^$1.25
Contract Net Choice
35-65% ^$1.65 ^$4.02
Choice
65-80% ^$2.53 ^$5.20
Choice
Over 80% ^$4.07 ^$2.27
Choice
Negotiated Grid 0-35% ^$4.04 $6.25
Net Choice
35-65% ^$0.25 ^$0.43
Choice
65-80% $0.41 ^$2.47
Choice
Over 80% $1.82 ^$2.39
Choice
------------------------------------------------------------------------
Mixed Formula Net 0-35% ^$2.74 $0.97
Steer & Choice
Heifer
35-65% ^$2.06 ^$2.85
Choice
65-80% ^$3.32 ^$2.92
Choice
Over 80% ^$5.06 ^$4.85
Choice
Forward 0-35% ^$7.04 $3.78
Contract Net Choice
35-65% ^$1.58 $0.49
Choice
65-80% ^$0.48 $0.79
Choice
Over 80% ^$2.81 $1.47
Choice
Negotiated Grid 0-35% $1.72 $0.55
Net Choice
35-65% $1.70 ^$0.04
Choice
65-80% $2.37 ^$1.14
Choice
Over 80% $1.72 ^$1.60
Choice
------------------------------------------------------------------------

This analysis includes the important purchasing arrangement data
element that has a significant impact on cattle prices. The omission of
purchasing arrangements as a contributing factor to the basis yields
analytical and model bias that incorrectly finds that COOL has
negatively impacted the basis.
For example, the SP study concluded that ``after controlling for
other factors that affect the basis, COOL widened the basis by 30
percent (Model 1) and 90 percent (Model 2).'' Another study done for
the packers by Informa Economics, Inc. (previously Sparks Commodities)
claimed a cost of $15-$18 per head for USDA's initial proposal \10\ and
a cost to packers and processors of $10-$18 per head under the final
rule. Informa claimed that under the final rule, ``. . . COOL costs . .
. (would) have a burdensome and differential cost impact is at the
packer/processor level.'' \11\ CCA claims even larger impacts, ``The
combined impact of the lower prices and the increased cost of
transporting livestock greater distances resulted in a loss of about
$90 per animal.'' \12\
---------------------------------------------------------------------------
\10\ Comments on Guidelines for Voluntary Country-of-Origin
Labeling Program, SparksCompanies, Inc., April 2003.
\11\ Informa Economics, Update of Cost Assessments for Country-of-
Origin Labeling--Beef & Pork (2009), June 2010.
\12\ http://www.cattle.ca/market-access/wto-disputes/.
---------------------------------------------------------------------------
The SP analyses draw conclusions from a simple econometric analysis
that is data dependent, including proprietary data and omitting key
variables. But an estimation of the econometric model specification
used by SP with MPR weekly average price data rather than the CCA data
shows that COOL did not have a significant negative effect on the price
basis. This analysis uses the packers' own MPR transaction information
which demonstrates that a more thorough model specification and data
set reveals that COOL did not increase the basis between domestic and
imported slaughter cattle prices, instead the price differential
declined after COOL went into effect.
Basis comparisons must go beyond comparison of average basis,
graphically or numerically or econometrically, and distinguish between
class, grade and purchase arrangement to avoid invalid conclusions.
Forward contracts dominate import slaughter cattle acquisitions, but
not domestic acquisitions. There have been extended periods when
pricing under forward contracts were both better than, and worse than,
average pricing under formula arrangements or the residual cash market.
Figure 1 shows the weekly price received for imported and domestic
slaughter steers and heifers averaged over all grades and purchase
arrangements.
Fig. 1. Average Prices Paid for Slaughter Steers & Heifers of Imported
& Domestic Origin, MPR Data

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Domestic and imported prices generally moved together, with a small
basis, except for notable exceptions in 2014 and 2011 when import price
was well below domestic price, and in late 2008 and early 2009 when
import price was well above domestic price for an extended period
(Figure 1). These differences are not due to COOL but to different
purchase arrangements dominating domestic compared to import slaughter
cattle acquisition. Forward contracts accounted for 54% of imports but
only 8% of domestic slaughter over the past 10 years (Figure 2).
Fig. 2. Slaughter Steers and Heifers Acquired under Forward Contracts
as a % of Total Slaughter by Origin, MPR Data

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Formula (marketing agreements) and negotiated acquisitions dominate
domestic but not import slaughter. Most marketing agreements have a
base price tied to a negotiated price, while forward contracts are
generally tied to futures market prices for cattle and/or exchange
rates. Negotiated prices thus dominate domestic acquisitions, while
futures prices dominate import acquisitions. When cash and futures
market prices diverge, as they do from time-to-time, the average prices
for imported slaughter cattle can diverge from the average domestic
price because of the purchase arrangement between packer and feeder.
Figure 3 compares the difference between average prices received
under forward contracts compared to formula arrangements for fed cattle
of domestic and import origin. As can be seen, the differences are
about the same for imported and domestic slaughter cattle. Thus, a
simple comparison of price basis averaged over all purchase
arrangements (see Figure 1) may give the illusion of a negative effect
of COOL on the price basis when, in fact, the differences are affected
by price fluctuations in futures markets (forward contracts) relative
to the residual cash market \13\ and not due to COOL.
---------------------------------------------------------------------------
\13\ The base price in most marketing agreements is tied in one-way
or another to price in the residual cash market for slaughter cattle.
---------------------------------------------------------------------------
Fig. 3. Price Differences Between Forward Contract and Marketing
Agreement Cattle, Imports Compared to Domestic, MPR Data

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Quality differences may also be important in explaining changes in
cattle trade over time. MPR data reveal that that grade of domestic
slaughter steers and heifers has trended upward faster than the grade
of imported cattle has improved. Figure 4 shows the percent of steers
and heifers grading at least 65% Choice. Those of domestic origin in
this grade category have approximately doubled from 30% to 60%, while
those of foreign origin have been quite variable but not trending as
strongly as those of domestic origin. To the extent that packers desire
to acquire high quality animals, they no longer need to rely on
imported cattle to the extent that they did in the era prior to
implementation of COOL.
Fig. 4. Percentage of Steer & Heifer Slaughter Grading at Least 65%
Choice, All Purchase Arrangements, MPR Data

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Thus there is no legitimate empirical evidence, based on actual
transaction data as reported by the packers, to support claims that
implementation of COOL created substantial segregation costs and caused
the price of imported slaughter cattle to decline relative to the price
of cattle of domestic origin.
COOL Did Not Lower the Ratio of Imported Slaughter Cattle to Domestic
Slaughter
Statistical, econometric and qualitative analyses do not provide
strong support to the contention that COOL reduced slaughter of
imported cattle. Econometric results are mixed, depending on data set,
observation period, and included variables. The more comprehensive data
sets analyzed here demonstrate that COOL itself had little if any
impact on the share of imported cattle slaughtered by U.S. beef
packers.
Figure 5 shows monthly U.S. and Canadian cattle trade for the past
20 years, while Figure 6 shows slaughter of imported cattle, primarily
Canadian, relative to slaughter of steers and heifers of domestic
origin, as identified in the weekly MPR data.
Fig. 5. U.S. Imports of Canadian Cattle, FAS and USDA Data, Monthly

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Fig. 6. Imported Slaughter Steers and Heifers as a Percentage of
Domestic Slaughter, MPR Data

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

An SP-like model estimated with MPR data has a significant negative
coefficient on the COOL binary variable. However, addition of weekly
captive supply (as a % of total slaughter) negates this result. Models
estimated with monthly data on the ratio of imports of Canadian
slaughter cattle over 700 lbs to total U.S. slaughter are mixed,
depending on observation period. Based on monthly data since Sept.
2005, beginning of the observation period used by SP, results show a
significant negative coefficient on the COOL binary variable. However,
estimating a similar model with observations going back to 1995 and
allowing for the ban due to BSE, gives insignificant results.
In statistical terms, the SP finding that COOL negatively impacted
imports of slaughter cattle is not a ``robust'' result because of
confounded results and omitted variable bias.
Aside from econometric games, numerical and visual comparison
(Figures 5 and 6) of pre and post-COOL imports do not provide
compelling evidence to support the contention that COOL has or will
destroy the Canadian cattle industry. For the past several decades,
about \4/5\ of Canadian cattle have been slaughtered at Canadian beef
packers and that has not changed since COOL went into effect. Nor has
the share of Canadian slaughter cattle processed at U.S. plants
declined significantly. The total Canadian beef cattle exports to the
United States has not trended downward, particularly considering the
buildup and historically high Canadian cattle herd before the BSE ban
\14\ relative to the declining U.S. cattle herd during that period.\15\
---------------------------------------------------------------------------
\14\ Slide 5 at http://canfax.ca/CFX_forum_2014/pdf/
CFX2014_speaker_Perillat.pdf.
\15\ http://www.beefusa.org/CMDocs/BeefUSA/Resources/Statistics/
annualcattlenumbersand
beefproduction774.pdf
---------------------------------------------------------------------------
Annual data on Canadian cattle slaughter reveal that the ratio of
exports of slaughter cattle to the U.S. to slaughter in Canadian plants
was 21.2% pre-COOL and 20.5% post-COOL, an insignificant decline.
Monthly trade data show that imports of Canadian cattle over 700 lbs
for slaughter, which includes some cattle put in U.S. feedlots for
finishing as well as cattle that go directly to slaughter, fell by a
lesser amount, from 3.0% of U.S. slaughter to 2.7%.
MPR data reveal that the ratio of import to domestic steer and
heifer slaughter was 2.4% pre-COOL and 1.7% after COOL was
implemented.\16\ However, it is noteworthy that this was not a slow
downward trend but a shift that occurred in early 2008, a year before
COOL was fully implemented. This shift may well have been triggered not
by impending COOL implementation, but by macro economic conditions
translating into beef and cattle demand uncertainty as well as to the
Canadian dollar and the Peso weakening by 20-30% relative to the U.S.
dollar during the developing world financial crisis.
---------------------------------------------------------------------------
\16\ Rather than use the MPR data on the ratio of slaughter cattle
imports to domestic slaughter, SP constructed a data series for fed
cattle slaughter based, in part, on their ``prediction'' of feeder
imports. Since they did not report their constructed data, or even mean
values, the validity and relevance of their analysis is unclear. Figure
3 in their report apparently charts their constructed data for the fed
cattle import ratio. The vertical axis in this chart is not labeled,
but assuming that the chart represents percentages, visual inspection
suggests and average of 2-4%. This, however, is higher than the actual
ratio from MPR data, which has an average of 2.0% for the same time
period.
---------------------------------------------------------------------------
Figure 7 shows weekly exchange rates for the Canadian dollar and
Mexican Peso for the past 10 years. Vertical lines in the chart bracket
the period during which interim and final COOL were being implemented.
As can be seen, both the Canadian dollar and the Mexican Peso weakened
dramatically during this period. Both currencies were at their weakest
when COOL went into full force in mid-March of 2009.
Fig. 7. Canadian Dollar and Mexican Peso Exchange Rates per U.S. Dollar

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Due to these substantial currency fluctuations, comparison of
imported cattle prices in other currencies to domestic prices in U.S.
dollars can be deceiving. Moreover, econometric models with price basis
in Canadian dollars and the (change in the) currency exchange rate as a
potential explanatory variable, as done by SP, may not fully account
for currency fluctuations and are inappropriate to the extent that
captive supply contracts with Canadian feeders are priced in U.S.
dollars.
The contention that imports will make up a smaller share of
slaughter capacity because of COOL also suffers from a logical fallacy
that is revealed by more thorough analysis. SP's theoretical argument
is that COOL reduces the U.S. domestic demand for imported slaughter
cattle, thus explaining the significant negative coefficient in their
econometric model of the import ratio. The corollary to their theory,
which they did not consider, is that the demand for slaughter cattle of
domestic origin should increase. Thus, one would expect that a COOL
binary variable included in an SP-like econometric model of U.S. cattle
slaughter would have a significant positive coefficient. But this is
not the case, as a SP-like reduced form model with U.S. slaughter of
fed cattle as the dependent variable, estimated with MPR data, has a
significant negative sign, just like it does in the model estimated
with the import ratio as the dependent variable and the same set of
independent variables. This inconsistent statistical finding casts
doubt on SP's attribution of a significant negative coefficient on
their COOL binary variable to COOL, per se. The estimated coefficient
may be confounded by a host of variables, omitted or included, and thus
not represent any causal net effect of COOL.
Additionally, the use of various marketing arrangements by powerful
buyers in the beef packing industry affects cattle prices. Changes in
market power confound both statistical and qualitative analyses of
COOL. SP assert that ``. . . allowing for market power by U.S. buyers
would not impact the results qualitatively.'' At best, this assertion
is true only if market power, by U.S. or Canadian buyers, did not
change. To the extent that market power changed, and there are
compelling reasons supporting a change in buyer power, statistical
results based on the SP model specification are subject to omitted
variable bias.
Domestic and foreign captive supplies of slaughter cattle are
highly plausible variables to include in a model intended to estimate
effects of COOL for two reasons. First, study after study has shown
that captive supplies have a negative effect on acquisition price and
may thus indirectly influence head slaughtered.\17\ Second, captive
supplies commit packers to future slaughter of cattle and may thus
directly affect trade.\18\
---------------------------------------------------------------------------
\17\ Some academic studies have argued that the strong negative
relationship between captive supplies is correlation, not causation.
However, public statements made by the CEO of IBP in 1988 and 1994,
that captive supplies gave IBP ``leverage'' in the residual cash
market, and sworn testimony by the Head buyer for IBP/Tyson strongly
supports causality. See, Taylor, C.R., ``Buyer Power Litigation in
Agriculture: Pickett v. Tyson Fresh Meats, Inc.,'' Antitrust Bulletin,
Vol. 53, No. 2, Summer 2008: 455-474.
\18\ As a hypothetical illustration of the potential market and
trade distortion of captive supply, suppose that a large domestic
packer has a blanket marketing agreement with a large domestic captive
feeder, normally acquiring 100 million pounds weekly. The packer also
acquires imported slaughter cattle on the cash market, normally
accounting for 10 million pounds weekly. The marketing agreement
extends indefinitely and guarantees the feeder a buyer, but not a
price. Contracts between packers and retailers are not publicly
transparent, but are known to dominate the industry. Suppose that the
packer has such a long-term contract with a retailer at a stated price,
but volume is not specified exactly. The packer normally provides 110
million pounds to the retailer. What happens if demand softens to 100
million pounds? Because of the captive arrangement, the packer must
abandon the import market and supply the retailer with cattle only from
the large captive domestic feeder. Without these captive arrangements,
we would expect the packer to acquire cattle from domestic as well as
foreign feeders, say 95 million pounds domestically and 5 million
pounds from imported suppliers. Thus, captive arrangements can distort
trade and confound interpretation of binary variables in econometric
models that do not account for captive supplies, domestic and imported.
---------------------------------------------------------------------------
Augmenting the SP model specification with captive supply variables
negates the negative significance of the COOL binary variable and shows
that import captive supply (as a % of total imports) has a highly
significant POSITIVE effect on the import head ratio while domestic
captive supply (as a % of total domestic slaughter) has a highly
significant NEGATIVE effect on the import head ratio.
MPR data show that captive supplies of imported slaughter cattle,
as a percent of total imports, were near 100% through 2007. Beginning
in early 2008, before COOL was implemented, imported captive supplies
dropped to an average of about 75% but fluctuated from 20% to 100%
through 2012, returning to about 100% in early 2013 (Figure 8). The
drop in imported captive supplies occurred months before interim COOL
was implemented and almost a year before mandatory COOL and may have
been triggered by packers' uncertainty over beef demand during
turbulent economic times that occurred along with implementation of
COOL.\19\ Although domestic as well as imported captive supplies vary
considerably week to week, a strong upward trend is apparent in
domestic captive supply from about 35% 10 years ago to 70% now.
However, the trend in domestic captive supply (as a percent) dropped
off somewhat during early 2008 at the same time that import captive
supply fell sharply.
---------------------------------------------------------------------------
\19\ Lack of consistent time-series data on plausible macro
economic variables to include in a model for import or domestic
slaughter, particularly proxies for ``uncertainty,'' unfortunately
limits how far one can go with statistical and econometric analyses.
---------------------------------------------------------------------------
Fig. 8. Captive Supply Percent of Canadian Imports of Slaughter Steers
& Heifers, MPR Data

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Expectations that beef demand would be lower due to macro economic
events during the period when COOL was being implemented may have
triggered packers' cutbacks in aggregate captive commitments.\20\
---------------------------------------------------------------------------
\20\ Economic theory suggests that beef packers would not fully
integrate vertically by ownership or through captive arrangements in
the face of demand uncertainty. We can expect them to integrate for
demand that they expect to occur with high probability, but not
necessarily to integrate for demand that may be highly uncertain. If a
packer is fully integrated vertically and the uncertain demand is not
realized, the packer is nevertheless legally committed to slaughter the
captive animals, thus resulting in financial losses to the packer. With
partial vertical integration, the packer can meet contracted retail
commitments in the presence of low demand, but walk away from the cash
market for slaughter animals. Thus we can expect packers to reduce
captive commitments during periods of relatively high demand
uncertainty to the extent permitted by contract terms. Such a reduction
is expected to occur not instantly, but over a period of weeks or
months.
---------------------------------------------------------------------------
Public data are not available on the extent of captive supplies of
Canadian cattle that are slaughtered in Canada. These arrangements for
slaughter in Canada may also affect trade and confound interpretation
of coefficients in a SP-like econometric model.
A detailed analysis in 2008 by the Canadian National Farmers Union
(CNFU) points to captive supply problems on both sides of the border,
concluding that ``. . . dramatically increased levels of captive supply
in both Canada and the U.S. have had price-depressing effects in both
countries.'' How fluctuations in Canadian and U.S. captive supply
arrangements affect price and trade cannot be determined without
reliable data. One study reports that captive supplies in Alberta
accounted for 50-60% of slaughter in Alberta in 2006,\21\ while more
recent news reports mention that Canadian captive supply is ``large.''
\22\ Canadian captive supply data are maintained by the CCA based on
packers voluntary reporting, but such data are not publicly available.
---------------------------------------------------------------------------
\21\ http://ageconsearch.umn.edu/bitstream/46435/2/ward28-
1%5B1%5D.pdf.
\22\ http://www.cattlenetwork.com/cattle-news/Canada-cattle-
report-Packers-cushioned-by-large-captive-supplies-168180546.html.
---------------------------------------------------------------------------
Tyson's sale of their Canadian Lakeside cattle feeding and
slaughtering operations also confound interpretation of econometric
results.\23\ Their exit reduced the number of meaningful buyers in
Canada from three to two, which may have also affected prices
(including the Alberta-Nebraska feeder price differential) and trade.
The shift from three to two buyers is well beyond levels of market
concentration that raise antitrust concern.
---------------------------------------------------------------------------
\23\ Tyson claims that they sold their Canadian cattle business
because of COOL, but this appears to be pretext. Instead, Tyson appears
to have shed its Canadian subsidiaries because of business
considerations. Statements in Tyson's SEC filings leading up to their
sale indicate financial losses on their Lakeside packing and cattle
feeding operations. U.S. cattle feeders suffered huge losses beginning
in late 2007 and extending through 2009, so Tyson likely also suffered
huge losses on their Lakeside feedlots that accounted for about 20% of
their Canadian slaughter. More recently, Tyson's motive in announcing
(October of 2013) that they would no longer buy Canadian slaughter
cattle but would continue to buy Canadian born animals sent to U.S.
feedlots is unclear.
---------------------------------------------------------------------------
The 2008 CNFU report raises concerns about exertion of increased
market power with Tyson's sale to an existing Canadian packer.
Fundamental ``generational'' change is also occurring in both the
U.S. and Canadian cattle industry, change that cannot be accounted for
in econometric models without meaningful and consistent time series
data on quite complex socioeconomic factors responsible for such
changes.
In summary, econometric and qualitative analyses do not strongly
support the contention that COOL has negatively impacted imported
slaughter cattle relative to slaughter of cattle of domestic origin. At
best, the econometric evidence is weak and lacks robustness.
COOL Did Not Affect the Ratio of Imported Feeder Cattle to Domestic
Feedlot Placements
COOL did not have a significant negative effect on either Canadian
or Mexican feeder cattle imports. Feeder cattle placements are
especially responsive to weather, economic and cattle cycle
variability. Numerical comparison of imports of feeder cattle from
Canada is sensitive to the time period chosen. A severe drought in
Alberta and other parts of Canada that spanned 2 years, 2001-02,
resulted in a spike of feeder cattle moving to the U.S. During
September-November of 2002, Canada exported over eight times more
feeder cattle than in the same months in 2001, and over 16 times more
than in 2000. In the 3 years prior to full implementation of COOL, an
average of 10,416 feeders were imported monthly, which fell to 7,456
feeders since. However, the average over 1990-2003 was 7,047, slightly
lower than post-COOL. Imports of feeder cattle from Mexico have
continued to rise (Figure 9).
Fig. 9. U.S. Imports of Feeder Cattle from Canada and Mexico, 400-700
lbs., FAS and USDA Monthly Data

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

SP's econometric analysis did not show a significant negative
effect of COOL on the feeder cattle price basis. A similar model
estimated with USDA data shown in Figure 10 did not show a significant
negative effect of COOL on the feeder cattle price basis. Exchange
rates, transportation costs, and seasonality econometrically explain
most of the variation in the feeder cattle price basis.
Fig. 10. U.S. Price Basis for Alberta Feeder Steers & Heifers Relative
to Nebraska Feeders, 500-600 lbs., U.S. Dollar/cwt, USDA Data

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

SP did report a significant negative effect of COOL in their model
purporting to represent Canadian feeder cattle imports, however, this
finding is compromised because their constructed data for the ratio of
Canadian feeder cattle imports appears to include other cattle. SP's
Figure 3 shows the feeder import ratio fluctuating between about 0.5%
and 9.0%, averaging roughly above 2%. Yet, USDA data show the ratio of
imported Canadian 400-700 lb cattle to U.S. feedlot placements to
average only 0.4% over the time period used for the PS chart.
SP-like econometric models estimated monthly USDA data with the
dependent variable defined to the imports of 400-700 lb cattle divided
by U.S. feedlot placements does not show a significant negative effect
of COOL on either Canadian or Mexican feeder cattle imports. In fact,
U.S. imports of Canadian feeder cattle in 2013-14 are the highest they
have been in the past 20 years (Figure 9), excluding the period in
2001-02 when extreme drought in Canada caused a spike in imports.
[Appendix D]

The Chairman. Ms. Dempsey.

STATEMENT OF LINDA M. DEMPSEY, VICE PRESIDENT OF INTERNATIONAL
ECONOMIC AFFAIRS, NATIONAL
ASSOCIATION OF MANUFACTURERS, WASHINGTON, D.C.

Ms. Dempsey. Chairman Rouzer, Members of the Subcommittee,
thank you for the opportunity to be here on behalf of the
National Association of Manufacturers; the nation's largest
industrial association, representing over 14,000 manufacturers
in every state in the country.
Last year, U.S. manufacturing output reached a record of
$2.1 trillion, supported over 12 million jobs, and, of course,
relies substantially on inputs from our nation's farmers and
agriculture producers for many of our food and beverage
products.
I am also appearing today as co-chair of the COOL Reform
Coalition, along with my colleague, Mr. Wenk, from the U.S.
Chamber.
Let me focus on five points. First, trade and U.S.
manufactured exports are a critical source of growth for U.S.
manufacturing and other industries in America. U.S.
manufactured exports reached a record level last year of $1.4
trillion, supporting millions of jobs. That growth has been
supported by decades of--since the creation of the World Trade
Organization and other market-opening trade agreements under
which the United States and other nations agree to play by a
basic set of rules. Second, Canada and Mexico are by far the
nation's largest export markets for our nation's manufacturers.
Last year alone, they purchased $485 billion in manufactured
goods from the United States. Third, the United States'
continued failure to bring the COOL rule for meat into
compliance with its WTO obligation is threatening substantial
quantities of manufacturing goods exports to our two closest
trading partners. There is wide expectation that the WTO will,
in fact, rule again that this rule is out of compliance with
the basic rules.
They have been found out of compliance not just once
already, but three times. Canada has put forth a proposed
retaliatory list, which includes many manufactured products
such as steel pipes, heating appliances, office furniture, and
mattresses. Mexico has not set forth what products it would put
on its list, but manufacturers have already witnessed firsthand
Mexican retaliation in the trucking case, where Mexico imposed
tariffs as high as 45 percent on many products, resulting in
lost sales and lost jobs. Manufactured goods were listed on
Mexico's trucking retaliation list, including office equipment
and a wide range of home appliances. Fourth, to be successful
globally, manufacturers needed a respected and enforced global
trading system. The United States led the world in writing
these rules, including the creation of the WTO in 1995, where
binding dispute settlement was a primary U.S. objective.
Enforcement of the rules-based trading system has already
helped American workers, farmers, and manufacturers secure
access to overseas markets, and grow our exports and jobs here
in the United States. If countries including the United States
do not live up to their obligations, the system will be
weakened, and our businesses and our workers will face the
penalty. Fifth, and finally, time is running out. It is
imperative that Congress act quickly, or else put at risk very
substantial levels, some believe billions, in U.S. exports to
Canada and Mexico, and the industries and jobs of tens of
thousands of workers that produce those goods.
With the threat of retaliation looming for our nation's
manufacturers, the NAM and the COOL Reform Coalition urge
Congress to bring the United States back into compliance with
its WTO obligations fully and quickly through the repeal of
these WTO inconsistent meat labeling provisions.
Thank you for the opportunity to testify today. I look
forward to working with the Committee to resolve this important
issue.
[The prepared statement of Ms. Dempsey follows:]

Prepared Statement of Linda M. Dempsey, Vice President of International
Economic Affairs, National Association of Manufacturers, Washington,
D.C.
Chairmen Rouzer, Ranking Member Costa, and Members of the
Subcommittee on Livestock and Foreign Agriculture, thank you for the
opportunity to testify on behalf of the National Association of
Manufacturers.
My name is Linda Dempsey, and I am the Vice President of
International Economic Affairs for the National Association of
Manufacturers (NAM). The NAM is the nation's largest industrial
association and voice for more than 12 million women and men who make
things in America. Manufacturing in the U.S. supports more than 17
million jobs, and in 2014, U.S. manufacturing output reached a record
of nearly $2.1 trillion. It is the engine that drives the U.S. economy
by creating jobs, opportunity and prosperity. The NAM is committed to
achieving a policy agenda that helps manufacturers grow and create
jobs.
I am also appearing today as co-chair of the COOL Reform
Coalition,\1\ along with the U.S. Chamber of Commerce. Launched a year
ago, the COOL Reform Coalition includes companies and associations from
across the U.S. economy, including a variety of manufacturing sectors,
that advocate for U.S. compliance with the international obligations it
has undertaken in the World Trade Organization (WTO) agreements
relating to the topic of this hearing.
---------------------------------------------------------------------------
\1\ www.COOLReform.com.
---------------------------------------------------------------------------
U.S. manufactured exports are a critical source of growth for
manufacturing and other industries throughout all 50 states. U.S.
manufactured goods exports reached their highest level ever last year,
totaling $1.4 trillion, which supports millions of U.S. jobs. That
growth has been supported over the past decades by the creation of the
WTO and other market opening trade agreements, under which the United
States and other nations agreed to reduce tariff and non-tariff
barriers.
The United States' continued failure to bring the Country-of-Origin
Labeling (COOL) rules for muscle cuts of meat into compliance with its
WTO obligations is threatening U.S. manufactured goods exports to our
two largest trading partners, Canada and Mexico. The COOL rules, which
were put in place more than 6 years ago, have already been found out of
compliance with the WTO obligations that the United States itself
helped create--not just once, but three times. With the threat of
retaliation looming for our nation's manufacturers, we and the COOL
Reform Coalition urge that Congress move quickly to eliminate these
WTO-inconsistent provisions.
I. Background on the COOL Dispute
The challenge before us today is not a new one. Indeed, it has been
more than 6 years in the making, with attempts to impose COOL rules on
muscle cuts of meat found to be out of compliance with international
rules time and again.
The 2002 Farm Bill, subsequently amended by the 2008 Farm Bill,
established U.S. Mandatory COOL rules that require most retailers to
provide country of labeling for fresh fruits and vegetables, fish,
nuts, meat and poultry, among other products. These provisions were
implemented through an Interim Final Rule of the U.S. Department of
Agriculture on July 28, 2008.
Less than 5 months later, Canada challenged the rule for muscle
cuts of meat at the WTO, arguing that COOL has a trade-distorting
impact by reducing the value and number of cattle and hogs shipped to
the U.S. market. Mexico joined the complaint soon thereafter.
In November 2011, the WTO dispute settlement panel established to
review the complaint found that the COOL rule violated U.S. commitments
under the WTO Technical Barriers to Trade (TBT) Agreement because the
rule treats imported Canadian cattle and hogs, and imported Mexican
cattle, less favorably than domestic livestock. The United States
appealed this ruling in March 2012 to the WTO Appellate Body. The WTO
Appellate Body ruled in June 2012 and also found that the COOL rule
violated U.S. obligations not to discriminate in its technical
regulations.
The United States requested a reasonable period of time to bring
the rule into international compliance and the U.S. Department of
Agriculture published revised rules nearly a year after the WTO
Appellate Body ruling in May 2013. The Canadian and Mexican governments
objected to the revised rules, and in August 2013 sought yet another
review--a so-called compliance panel--to determine whether the revised
COOL rule was WTO compliant.
In October 2014, the WTO compliance panel report found the United
States to be in continued violation of its WTO obligations under the
TBT Agreement, but also in violation of the basic GATT 1994 agreement
for discriminating against products imported into the United States. In
fact, the WTO compliance panel found that the revised rule was even
more discriminatory than the earlier version by requiring additional
segregation. The United States appealed the decision in December, and a
final WTO decision is expected this spring.
Given the earlier findings, including the most recent finding that
the revised rule is more discriminatory, it is widely expected that the
WTO Appellate Body will find that these rules discriminate against
imports from Canada and Mexico. As a result, both Canada and Mexico
will be authorized to retaliate against billions of dollars of U.S.
exports.
II. Impact of Retaliation on U.S. Exports, Industries and Jobs
This past year, the NAM and U.S. Chamber of Commerce joined with
other broad industry groups and individual companies to form the COOL
Reform Coalition to urge action to avoid WTO-authorized retaliation on
a wide variety of U.S. non-agricultural exporting industries.
Canada and Mexico are by far the United States' largest export
markets, and purchased a record $485 billion in manufactured goods in
2014. Those exports support millions of U.S. jobs. WTO-authorized
retaliation by two of the largest U.S. trading partners could result in
billions in tariffs affecting multiple sectors of the U.S. economy,
threatening the livelihoods of American families.
Canada has put forward a proposed retaliatory list. The list
includes agricultural products such as beef, pork, cheese and fresh
fruit. But the impact would be much broader: steel pipes, heating
appliances, office furniture and mattresses are among the manufacturing
products on the proposed list.
Mexico has not set forth what products could be included on its
list. But the impact on U.S. companies is expected to be severe, if
history serves as our guide. Mexico imposed tariffs as high as 45
percent on 99 U.S. products after a North American Free Trade Agreement
(NAFTA) dispute settlement panel sided with Mexico on a dispute over
cross-border trucking in March 2009. More than $2.5 billion of U.S.
exports to Mexico were affected, resulting in lost sales and lost jobs.
Agricultural and manufactured goods were both listed on Mexico's
trucking retaliation list, ranging from potatoes, pork, cheese and red
wine to office equipment and home appliances (refrigerators, dish
washers, washing machines). Many companies reported that once they lost
sales to Mexico because of the retaliatory tariffs, they lost that
customer for the foreseeable future. Those lost sales were devastating
to businesses, workers and their communities across the U.S. economy.
As well, there are broader systemic concerns. The dispute is also
about U.S. international leadership and whether the United States will
meet the international obligations that it has voluntarily undertaken--
and indeed created--as a founding member of the WTO.
Since the WTO was created in 1995, there have been about 490
complaints. The United States has brought over 113 complaints, most of
which it has won or favorably settled. The United States has been the
respondent in over 140 cases, of which it has been found out of
compliance in about \1/3\ of the cases.\2\
---------------------------------------------------------------------------
\2\ See Office of the United States Trade Representative (USTR),
``Snapshot of WTO Cases Involving the United States'' (May 22, 2014),
https://ustr.gov/sites/default/files/Snapshot%20May.pdf.
---------------------------------------------------------------------------
It is very much in the long-term economic interests of the United
States to live by the rules of the international trading system and to
ensure that other countries do the same. We led the world in writing
these rules first in the General Agreement on Tariffs and Trade (or
GATT) in 1947 and then with the creation of the WTO in 1995, where
binding dispute settlement was a primary U.S. objective.
Enforcement of the rules-based trading system has helped American
workers, farmers, and manufacturing companies secure access to overseas
markets and grow exports and jobs in the United States. From barriers
to grain in the European Union, shelf life restrictions in Korea to
automotive restrictions, discriminatory taxes, and raw material and
rare earth export restrictions in China, the WTO dispute settlement
system is vital to America's access to world markets.
As explained in the NAM's recent report, Trading up with TPA,\3\
growing U.S. manufacturing exports to win more of the nearly $12
trillion in annual world trade in manufactured goods will provide
substantial new opportunities to our nation's manufacturers and help
sustain and grow American jobs. To be successful globally, our
exporters need a respected and enforced global trade system. If
countries, including the United States, do not live up to their
obligations, the system will be weakened and our exporters will face
even more onerous barriers.
---------------------------------------------------------------------------
\3\ NAM, Trading up with TPA: Manufacturers Need New Trade
Agreements for Jobs, Growth and Competitiveness (February 2015), http:/
/www.nam.org/Data-and-Reports/Reports/Trading-Up-With-TPA-(Full-
Report).pdf.
---------------------------------------------------------------------------
III. Action to Repeal WTO-Inconsistent COOL Provisions is Needed Now to
Avoid Retaliation
Our nation's exporters are running out of time. Once a final WTO
decision is announced, retaliation by Canada and Mexico could be
authorized as soon as 60 days thereafter.
Even before retaliation is in place, U.S. exporters will lose
sales, as we did during the cross-border trucking dispute with Mexico.
Just as in the United States, customers oftentimes plan months in
advance and once a decision is made will seek to import from countries
that are not targeted for retaliation. As a result, America's exporters
will start losing sales immediately even if we allow a brief period of
non-compliance after final adjudication.
Failure to act quickly to bring the United States into compliance
will put at risk billions of dollars of U.S. exports to Canada and
Mexico and the industries and the jobs of tens of thousands of workers
that produce those goods.
IV. Conclusion
The NAM's primary objective, as a co-chair of the COOL Reform
Coalition, has always been to avoid retaliation by Canada and Mexico
and to prevent a loss of export sales by our nation's manufacturers. In
that capacity, we have urged Congress to create a process to be able to
quickly bring the U.S. into compliance with its international
obligations by a final ruling. Congress has not acted.
With the threat of retaliation looming for our nation's
manufacturers, time has run out. The NAM and the COOL Reform Coalition
urge Congress to bring the United States back into compliance with its
WTO obligations fully and quickly through the repeal of these WTO-
inconsistent provisions.
Thank you for the opportunity to appear today. I look forward to
working with the Committee to resolve this important issue.

The Chairman. Mr. LaFaille.

STATEMENT OF TOM LaFAILLE, VICE PRESIDENT AND
INTERNATIONAL TRADE COUNSEL, WINE INSTITUTE,
WASHINGTON, D.C.

Mr. LaFaille. Mr. Chairman, Ranking Member Costa, and
Members of the Subcommittee, my name is Tom LaFaille with the
California Wine Institute. We represent 1,000 California
wineries and related businesses. We appreciate your leadership
on this important issue.
COOL represents an enormous threat to California exports
and U.S. exports of wine. Whether you are a wine consumer or
not, there is a winery in every state in the United States,
including the Chairman's home State of North Carolina, with
Biltmore Estate Winery that exports. We have estimated that it
is a $120 billion industry, which created over 800,000 jobs,
largely in rural areas. So wineries represent an important
economic factor around the country.
Globally, U.S. exports of wine reached $1.5 billion last
year. It was slightly down due to the strong dollar and the
West Coast port shutdown. Retaliatory tariff, whether by Mexico
or Canada, would represent a significant additional challenge
on top of the challenges we face. Wine Institute works to
fight--to work against tariff trade barriers, tariff barriers,
as well as non-tariff barriers, but it is a country's tariff
that is the most significant factor in determining a market's
export potential.
We estimate that COOL-related damages to the U.S. wine
industry could reach upwards of $500 million. We know that
retailers will soon begin buying elsewhere, price-sensitive
consumers will shop elsewhere, and it will take years to gain
back the current market share that we have.
We learned this the hard way with Mexico's two previous
tariff retaliations. In 2007, we had sales of $22 million in
exports to Mexico. After the retaliation, they quickly dropped
to $11 million. That is a 50 percent drop in 1 year. And even
after the tariffs were eliminated in 2011, it took another 3
years, to this year, before our exports finally reached the
2007 levels. So we know that retaliation will cause enormous
loss of sales and U.S. jobs. So we urge Congress to act quickly
once the WTO's decision is made, in order to prevent
retaliation.
Thank you for your leadership and your efforts to grow U.S.
exports.
[The prepared statement of Mr. LaFaille follows:]

Prepared Statement of Tom LaFaille, Vice President and International
Trade Counsel, Wine Institute, Washington, D.C.
Chairman Rouzer, Ranking Member Costa, Members of the Subcommittee:

Thank you for the opportunity to share our views on the important
topic of Country-of-Origin Labeling (COOL) and the ramifications of
Canada and Mexico imposing retaliatory tariffs on American wine
exports.
Wine Institute is the premier organization of 1,000 wineries and
businesses in the United States (U.S.) and around the world. California
wine represents 90% of U.S. wine production, 90% of U.S. exports and
contributes over $120 billion annually to the U.S. economy.
Wine Institute conducts a comprehensive export marketing campaign
that communicates California as an aspirational place with beautiful
landscapes, iconic lifestyle, great wine and food and as an
environmental leader. With U.S. wine exported to more than 125
countries, Wine Institute's work in 25 countries, supported by the U.S.
Department of Agriculture's (USDA) Market Access Program (MAP), conveys
these messages across the globe through a full slate of activities
including international trade shows and trade missions, retail and on-
premise tastings for trade, media and consumers and a global social
media campaign and consumer site DiscoverCaliforniaWines.com.
We also work closely with other U.S. industry groups, the U.S.
government and the international wine community--including the Canadian
and Mexican Governments and their winemakers in the World Wine Trade
Group and the Asia-Pacific Economic Cooperation Wine Regulatory Forum--
to lower tariff and non-tariff trade barriers and to grow exports for
our mostly small and medium sized, family run businesses.
WWTG
In light of the U.S.'s collaborative work with Canada to reduce
barriers to trade and create a level playing field, it is most
unfortunate that Canada has now chosen to involve wine and other
products in an unrelated trade dispute. Wine Institute strongly opposes
retaliatory tariff increases on any country's wines in response to a
dispute, such as COOL, that does not involve wine.
In fact, wine producers in the World Wine Trade Group (WWTG), a
multinational organization that includes government and industry
representatives of the U.S. and Canada have undertaken to follow the
principle that wine should not be used for retaliation in trade
disputes relating to other products. Wine Institute urges Canada to
abide by the principles to which its own industry agreed in WWTG.
U.S. Wine Exports
With Canada the No. 1 and Mexico the No. 6 market for U.S. wine
exports, COOL-related retaliatory tariffs would have an enormously
negative economic impact on our winemakers and grapegrowers. Sales of
U.S. wines to Canada have grown steadily in recent years. Globally,
2014 U.S. wine exports totaled $1.49 billion in revenues, the second
highest dollar value for U.S. wine exports and a 64% increase from 5
years ago. Our exports did suffer a slight decline last year because of
the strong U.S. dollar and the West Coast port slowdown. Combined with
those two challenges, a significant tariff increase in Canada would be
another tough challenge for U.S. winemakers.
Last year in Canada, U.S. wine exports reached $487 million, a 7%
increase over 2013. California sales have experienced strong growth in
all the major markets across Canada over the past few years. Retail
sales now exceed a record six million cases and $1 billion with the
strongest increases in the provinces of Quebec and Alberta. Canadian
consumers have confidence in the quality and value offered by
California and our wines are successful in all price segments.
U.S. wineries are also experiencing similar success in Mexico, our
sixth largest export market. In 2014, U.S. wine exports to Mexico
totaled $24 million, a 13% increase over 2013.
COOL
Canada's preliminary retaliation list targets a broad spectrum of
commodities that will affect every state in the country, potentially
delivering a paralyzing blow to U.S. winemakers, other farm and food
economies and rural households. Under World Trade Organization (WTO)
rules, retaliatory tariffs would likely be placed on the value of the
products as entered into the retaliation country.
Canada calls it a surtax on imports, which would mean that a bottle
of wine entering into Canada with an import value of $10 would be hit
with a $10 surtax. The resulting doubling of price for our wine in
Canada will, no doubt, drive a large percentage of our customers away.
In fact, we believe that if this cloud of uncertainty concerning a
dramatic increase in the price of U.S. wine is allowed to persist,
Canadian and Mexican wine buyers will soon begin looking elsewhere to
stock their grocery and liquor store shelves.
A Canadian tariff of this nature could cut off the vast majority of
U.S. wine exports to Canada and cost U.S. winemakers hundreds of
millions of dollars in lost sales. Adding to this harm, our market
share will take many years to gain back. Consequently, the cost of
winning back shelf space and market share over the years following the
end of retaliatory tariffs will also be substantial.
A difficult but important lesson can be drawn from Mexico's
previous retaliatory tariffs. In two past trade disputes with the U.S.,
Mexico retaliated against U.S. products costing the U.S. millions of
dollars in lost sales and lost market share. In 2009, Mexico imposed a
20% tariff on wine due to the trucking dispute. This was the second
retaliation imposed by Mexico on U.S. wine in 7 years, the first
concerning a WTO dispute over the Byrd Steel Dumping Amendment, which
the U.S. repealed in 2007.
In 2007, U.S. wine exports to Mexico reached a high of $24 million
in revenues to wineries. Following Mexico's retaliatory tariffs, U.S.
wine exports dropped to $18 million in 2010, a 25% loss in sales. While
Mexico eliminated its retaliatory tariffs in 2011, it took another 3
years to 2014 before U.S. wine exports returned to just the level where
they were in 2007.
From this experience, it is certain that:

1. Retaliatory tariffs dramatically harm U.S. wine exports; and

2. It will take U.S. wineries many years, if not decades, to recover
from another country's retaliatory tariffs.
Conclusion
In closing, COOL-related retaliatory tariffs will result in an
enormous loss of sales for U.S. wineries, estimated to be in the
hundreds of millions of dollars. Since the strong growth of U.S. wine
exports to Canada and Mexico over the past decade has in part been due
to USDA's Market Access Program, it would be most unfortunate now for
Congress to allow another U.S. law such as COOL to undo these hard-
fought export gains.
For these reasons, Wine Institute respectfully requests that
Congress act quickly to address this critical matter. Thank you very
much for your continued leadership and efforts to resolve this dispute
and to grow U.S. exports.

Tom LaFaille,
Vice President and International Trade Counsel,
Wine Institute.

The Chairman. Thank you very much.
I am going to yield about 15, 20 seconds to Mr. Costa here
to introduce Mr. Smith.
Mr. Costa. Thank you very much, Mr. Chairman, for that
privilege.
It is indeed my honor to introduce Mr. Smith of Harris
Farms. I have worked with Harris Farms Company for decades.
They have developed a reputation not only in California but
across the country as one of the premiere producers of beef,
from the grazing, to the feedlot, to the processing, and to the
value-added. They export a great deal of beef products, and
have pioneered opening new markets in Asia and elsewhere, and
it is indeed our honor to have Mr. Smith, representing Harris
Farms, here this morning. Thank you, Mr. Smith.

STATEMENT OF MICHAEL T. SMITH, SPECIAL PROJECTS MANAGER, HARRIS
RANCH COMPANY, SELMA, CA

Mr. Smith. No, Congressman, thank you.
Last year, I had the privilege to be asked to testify
before this Subcommittee on the state of the beef industry, and
at that time, I identified Mandatory Country-of-Origin Labeling
as a critical issue for the beef industry, and one that really
needed Congress to act upon. Now, 1 year later, I find myself
here at this Subcommittee again, asking one more time that
Congress take up this legislation, which, in its simplest form,
is a solution looking for a problem, but in reality, it is just
bad public policy. And I don't think I need to remind you that
the clock is ticking.
COOL has plagued our industry for years. Its supporters
point to surveys showing that Americans want to know where
their beef comes from, but most surveys fail to provide an
accurate measure of how consumers actually vote, which is with
their pocketbook.
As a family-owned, functionally-integrated cattle feeder
and beef processor, Harris Ranch has experienced firsthand the
cost associated with implementing COOL. From burdensome record-
keeping of live animals, to sorting and segregating of
carcasses in the coolers, to operating dedicated fabrication
sets to separate the myriad of beef products generated from
each and every carcass. Cattle producers are currently
experiencing discounts ranging from $35 to $60 per head. They
were applied for no other reason than Country-of-Origin
Labeling. These discounts are hitting U.S. cattlemen, cattle
feeders and processors that purchase cattle of Canadian and
Mexican origin.
In the southern tier States of California, Arizona, New
Mexico, and Texas, cattle producers often purchase feeder
cattle from Mexico to graze on pastures, or place them in
feedlots to finish in the United States. Mexican-origin cattle
are extremely important to the southern tier states because
they provide production efficiencies associated with keeping
cattle pens full, bunk space occupied, and quite frankly, blood
on the floor. They provide a consistent supply of fed cattle
for beef processing facilities, and especially those that are
located near the border.
I would turn to the fundamental question at hand. Why do we
have COOL? I think everybody would agree, that question is
especially important when you consider the WTO case. If Canada
and Mexico win the most recent appeal, which we honestly
believe they will, they will be allowed to retaliate not only
against our industry, but many others as well, some of whom you
have heard from today.
Cattle: Canada and Mexico are two of the beef industry's
top export markets, worth roughly $1 billion a piece. That is
big money for any industry. In fact, it equates to roughly \1/
3\ of our total beef export value. If we lose access to those
markets, it will have a profoundly negative impact on all U.S.
beef producers. All of our current global market access equates
to approximately $350 per fed steer and heifer marketed today.
If we lose \1/3\ of that, roughly $115 will be taken directly
out of the pocket of every cattleman in the United States.
But the monetary losses are not all of the problem. The
vigorous defense of COOL by our government sends an antitrade
signal to the international community. The WTO keeps telling us
that COOL violates our trade commitments, but our government
keeps saying no, it does not. Future trading partners will look
at this issue closely, and use it before they ink any trade
deals with us. I am certain we would do the same if we saw
similar behavior from our trading partners.
Finally, I wonder why our government wants to hurt an
industry for a simple marketing program, and that is really
what it is. The vast majority of the industry does not want it,
and consumers don't use it. COOL is about marketing, has
nothing to do with food safety. Those who use that argument, it
is basically a red herring because they just want to keep on to
hold their position. At the end of the day, COOL is an
experiment that has failed. We agree with Secretary Vilsack
that Congress must act to fix COOL, but the only way to fix it
and ensure that there won't be future WTO cases is to repeal
it.
Thank you.
[The prepared statement of Mr. Smith follows:]

Prepared Statement of Michael T. Smith, Special Projects Manager,
Harris Ranch Company, Selma, CA
Mr. Chairman, Ranking Member Costa, thank you for the opportunity
to be here today to continue the discussion of mandatory, government-
run country-of-origin labeling better known as COOL.
The COOL debate has plagued our industry for almost 2 decades.
Proponents of COOL have long said that mandatory labeling would cause
the U.S. consumer to actively seek out and pay more for U.S. beef. Over
6 years of implementation, however, has proven this is not the case.
Kansas State University published a study titled ``Mandatory Country-
of-Origin Labeling: Consumer Demand Impact'' in November of 2012. Their
study utilized multiple methods to gauge consumer perception and use of
COOL, and came away with several findings which did not surprise those
of us in the beef industry. The study discovered that demand for
covered meat products has not been impacted by mandatory country-of-
origin labeling (MCOOL) implementation. In addition, typical U.S.
consumers are unaware of MCOOL and do not look for meat origin
labeling.
While proponents of COOL say they have surveys that show Americans
want to know where their beef comes from, the K-State study actually
measured how Americans vote. Americans vote with their pocketbook by
purchasing beef, and as stated above, the vast majority don't consider
COOL in their purchasing decision. Why then would we incur the costs of
a program that the consumer is not demanding? As a cattle feeder and
packer, Harris Ranch has experienced the costs associated with
implementing COOL. From burdensome record-keeping, to line sorting and
segregation, and to the actual label itself, we have been paying the
costs of COOL since it went into effect in October of 2008. All
segments of the U.S. beef industry have been impacted by COOL.
Feeders and packers across the country, and of all sizes, are
experiencing the same issues with compliance costs and discounts. As a
result of the costs associated with the implementation of COOL, we have
seen discounts paid on cattle which originate in either Canada or
Mexico. Those discounts have ranged from $35 to $60 per head. These
discounts are incurred for no other reason than COOL. The cattle can
have the same quality characteristics as a similar animal of domestic
origin, but will be discounted because of COOL. The discounts are not
just borne by Canadian and Mexican producers. U.S. cattle producers and
feeders are incurring these discounts as well.
In states such as California, Arizona, New Mexico and Texas, cattle
producers will bring in feeder cattle from Mexico and finish them in
the United States. This takes place on U.S. ranches and feedlots
utilizing U.S. labor and U.S. grown feed. This production method is
seen in other states and is the primary way many cow/calf producers and
cattle feeders are feeling the brunt of COOL. Again, these discounts
are being realized by American beef producers thanks to a program that
proponents said would help them.
Given all I've stated above, I again have to ask the question ``why
do we still have COOL?'' That question is especially relevant when you
look at the World Trade Organization (WTO) case filed by Canada and
Mexico against our mandatory, government-run COOL program. The WTO has
ruled against the U.S. COOL program three times, most recently in
October of 2014. The U.S. Government, however, has appealed this
decision. We expect the WTO to rule on the current appeal on, or about,
May 18th. If Canada and Mexico win their appeal for a fourth time,
which we believe they will, they will be allowed to retaliate against
our industry and many other industries across the United States.
Canada and Mexico have consistently been two of our top five
markets for the export of U.S. beef. In 2014, Canada imported over $1
billion in U.S. beef and Mexico imported almost $1.2 billion. That is
big money for our industry. In fact, it equates to approximately \1/3\
of our total beef export value. If we lose access to those markets, or
have tariffs placed on them, it will have a negative impact on U.S.
producers. All of our current global market access equates to
approximately $350 per marketed head. If we lose \1/3\ of that, roughly
$115 per head will be taken out of the pocket of every U.S. cattle
producer. That is a cost in addition to all we have incurred with
compliance.
As I mentioned above, we have been paying the costs of COOL since
2008. Retaliation would only make our losses worse. The monetary losses
are not all, though. The vigorous defense of COOL by our government
does not send a pro-trade signal to the international community. The
WTO keeps telling us that COOL violates our trade commitments, but our
government keeps saying it doesn't, even though the very entity
regulated does not support the program. Future trading partners will
look at this closely and use it before they ink any trade deals with
us. We would do the same if we saw that behavior from any of our trade
partners. This anti-trade stance is contrary to the very pro-TPA
rhetoric we are hearing from this Administration. So, just who are they
trying to protect with COOL?
Why would our own government want to hurt our industry for a simple
marketing program that the vast majority of the industry does not want
and that the consumer does not use? COOL is all about marketing and has
absolutely nothing to do with food safety. Those who use that argument
know nothing about the food safety protocols in this country. This is a
red herring used by COOL proponents in a desperate attempt to hold on
to their position. COOL is a farce and its proponents obviously have no
idea how modem beef production in the United States actually works.
They have a simple and short-sighted view which is already costing our
industry money.
COOL is a failed experiment. It has added costs to the production
of beef and resulted in discounts borne by American ranchers; the U.S.
has been found out of compliance with our WTO trade obligations three
times, and soon to be a fourth; and our two closest trading partners
are potentially months away from instituting retaliatory tariffs
against multiple industries, damaging our economy and costing jobs. All
of these negative consequences result from a program that the typical
consumer does not even look for when buying their steaks or ground
beef.
After the WTO ruled against the U.S. in 2012, USDA took NFU's
advice and revised the COOL regulations. Today, we're seeing the
result: a more burdensome COOL program for the meat industry; more
steps in the WTO case taking us to the brink of retaliation;
uncertainty for U.S. exporters in multiple industries; and a label even
less useful or meaningful to the consumer. This must stop. The
Secretary of Agriculture has made several public comments over the past
few months, most recently at the NFU convention, that there is nothing
else he can do to bring COOL into compliance and that Congress must
act. On that point, we agree. We must ensure that we are not sitting
here again in 2 years, facing another potential loss at the WTO. The
solution is for Congress to repeal COOL now. Half-measures or other
alterations to COOL will only bring more uncertainty and possible WTO
challenges. That is unacceptable to the meat industry, as well as to
the other industries forced to look over their shoulders, worried about
potential retaliatory tariffs from Canada and Mexico. We encourage you
to work with Chairman Conaway to repeal COOL before retaliation is
implemented.
Mr. Chairman, thanks for the opportunity to be here today.

The Chairman. Ms. Bodor.

STATEMENT OF ALISON BODOR, EXECUTIVE VICE PRESIDENT, NATIONAL
CONFECTIONERS ASSOCIATION, WASHINGTON, D.C.

Ms. Bodor. Good morning. I am Alison Bodor, Executive Vice
President of the National Confectioners Association, and I
appreciate this opportunity to testify on behalf of America's
confectionary companies that manufacture and market the vast
majority of chocolate, gum, candy, and mints sold in the United
States.
NCA also represents the companies that supply those
manufacturers, and companies who serve as brokers. More than
\2/3\ of NCA's 290 members are small businesses. Many of the
industry's manufacturers are now fourth and fifth generation
family-owned companies, started by immigrants before the turn
of the century. The industry supports 70,000 jobs across the
United States, and if you add in supplier and distribution
networks, that number easily triples.
NCA members have long supported free trade. This is despite
the fact that our companies are disadvantaged in our own
domestic marketplace by U.S. agriculture subsidies that
increase the price of sugar, one of our key ingredients, in the
U.S. compared to the world price that our global competitors
enjoy. Confectionary manufacturers are major users of U.S.-
grown commodities, including sugar, corn sweeteners, dairy
products, peanuts, almonds, and other nuts. These industries,
of course, benefit also from U.S. exports of confections.
In 2014, U.S. confectioners exported more than $2 billion
worth of candy, chocolate, gum, and mints, and bulk chocolate
products around the world. Not surprisingly, Mexico and Canada
are our most important trading partners. Forty percent of U.S.
confectionary exports are to Canada, $900 million worth, while
15 percent are to Mexico. These two markets together total over
50 percent of U.S. confectionary exports. We are deeply
concerned that retaliatory duties from both countries will
target our industry.
Let me talk about Canada. Currently, four confectionary-
related tariff codes are on Canada's proposed retaliatory duty
list. These codes capture U.S.-made bulk chocolate
preparations, finished chocolate confections, and sugar-free
sweeteners. Together, these confectionary products represented
$615 million of confectionary exports to Canada last year. U.S.
confectioners have worked hard to grow the presence of U.S.
confections and intermediate products in Canada, and our
efforts are paying off. Exports of finished chocolate grew by
almost $45 million in just the last 2 years, while exports of
bulk chocolate grew by almost $12 million. Those years of
investment will quickly be diminished if the retaliations from
Canada are implemented. For all of these products; chocolate,
bulk chocolate, wafers, biscuits, and sweeteners, there are
Canadian and global competitors. Many American-made chocolates
will disappear from Canadian shelves. Manufacturers in Canada
that source critical raw materials from U.S.-based suppliers
will shift supply chains outside of the United States. That
loss of business will impact U.S. confectionary companies,
their workers, and importantly, also their communities.
The Government of Mexico has not yet declared the products
upon which they intend to levy duties if WTO grants
retaliation, but U.S. confectioners are very troubled that our
industry will again be targeted, as they were several years ago
during the U.S.-Mexico cross-border trucking dispute. At that
time, Mexico implemented a 20 percent duty on confectionary
products. That resulted in a 50 percent drop in U.S.
confectionary exports.
The longer these disputes are unresolved, the greater the
consequences to the U.S. confectionary industry, and the
communities in which those companies reside. U.S. confectioners
urge Congress and the affected industries to find a resolution
that ensures U.S. compliance with international trade
obligations, and avoids retaliatory actions against our exports
to the north, and possible retaliation for our exports to the
south.
Thank you very much.
[The prepared statement of Ms. Bodor follows:]

Prepared Statement of Alison Bodor, Executive Vice President, National
Confectioners Association, Washington, D.C.
Impact of the Trade Dispute Over Country-of-Origin Labeling on the U.S.
Chocolate and Confectionery Industry
I appreciate this opportunity to testify on behalf of America's
confectionery companies before this Subcommittee. NCA has been
representing companies that manufacture candy, one of life's little
pleasures, since 1884. Today, NCA represents 290 companies that
manufacture and market the vast majority of chocolate confectionery,
sugar confectionery, gum and mints sold in the United States, 260
companies who supply those manufacturers and 135 companies who serve as
third-party sales agents for manufacturers, known as brokers.
More than \2/3\ of NCA's members are small businesses. Many of the
industry's manufacturers are now fourth and fifth generation family-
owned companies, started by immigrants before the turn of the century.
There are confectionery manufacturers in all 50 states, with a
particular concentration in Pennsylvania, New York, New Jersey,
Illinois, Ohio and California.
According to the U.S. Department of Labor, in 2009 (the latest data
available) there were about 70,000 Americans directly employed by the
confectionery industry. When you count the related number of sales and
distribution jobs associated with the industry, that number triples.
Confectionery workers are represented by the Bakery, Confectionery,
Tobacco, and Grain Millers; United Food and Commercial Workers
International; and the Teamsters Unions.
Confectionery manufacturers are major users of U.S.-grown
commodities including sugar, corn sweeteners, dairy products, peanuts,
almonds and other nuts. These industries, of course, benefit also from
U.S. exports of confections.
NCA members have long supported free trade.
NCA companies have actively engaged in the President's National
Export Initiative. In 2014, U.S. confectioners exported more than $2
billion worth of candy, chocolate, gum, mints and bulk chocolate
products around the world. Not surprisingly, Mexico and Canada are our
most important trading partners. Forty percent of U.S. confectionery
exports are to Canada ($900 million) while 15 percent (more than $300
million) are to Mexico. These two markets together total over 50
percent of U.S. confectionery exports. We are deeply concerned that
retaliatory duties from both countries will target our industry.
Let me tell you more about how U.S. confectioners will be impacted
if Canada proceeds with retaliatory duties. Currently, four
confectionery related tariff codes are on Canada's proposed retaliatory
duty list. These codes capture U.S.-made bulk chocolate, finished
chocolate confections and sugar-free sweeteners. Together, these
confectionery products represented $615 million of U.S. exports to
Canada last year.
Tariff code 1806.90 covers chocolate and chocolate confectionery.
Included here are chocolates in varied forms, such as buttons, coins,
drops, hearts, animals, and other shapes along with assorted boxes of
chocolate and hot cocoa mixes. U.S. confectioners supply more than 50
percent of Canada's total imports in this category. Examples of typical
chocolate products classified under 1806.90 are pictured below.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Sweet biscuits and waffles/wafers are covered under tariff code
1905.31 and 1905.32. Forty-two percent of Canada's total imports of
sweet biscuits and \2/3\ (68 percent) of Canada's total imports of
waffles/wafers are sourced from the U.S. Some of NCA's members
manufacture chocolate-covered or chocolate-containing sweet biscuits,
waffles and wafers. Examples to illustrate such finished products are
pictured below.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Example of chocolate-covered sweet Examples of chocolate-covered
biscuits (1905.31) waffles and wafers (1905.32)

Tariff code 1806.20 covers bulk chocolate preparations. These
include chocolate crumb, liquid chocolate and chocolate slurries, all
of which are used in the manufacture of chocolate and chocolate-
containing products. U.S. chocolate makers supply more than 75 percent
of Canada's total import demand of bulk chocolate preparations.
Certain sugar substitutes including sorbitol and xylitol are
included in Tariff Code 2940.00. More than \1/4\ (28 percent) of
Canada's total imports of sweeteners of 2940.00 are sourced from the
U.S. As the sugar-free market continues to grow, sugar substitute
inputs sourced from the U.S. continue to grow to support manufacturing
of sugar-free gum and confectionery.
U.S confectioners have worked hard to grow the presence of U.S.
confections and intermediates in Canada and our efforts are paying off.
Exports of finished chocolate grew by almost $45 million in just the
last 2 years, while exports of bulk chocolate grew by almost $12
million. Those years of investment will quickly be diminished if the
retaliations are implemented. For all of these products--chocolate,
bulk chocolate, wafers/biscuits and sweeteners--there are Canadian and
global competitors. Many American-made chocolate products will
disappear from Canadian shelves. Manufacturers in Canada that source
critical raw materials from U.S.-based suppliers will shift supply
chains outside of the United States. We are aware already of Canadian
companies using the threat of the retaliation to lure manufacturers to
new and more secure supply sources. The loss of business will impact
U.S. confectionery companies and their workers, also their communities.
The Government of Mexico has not yet declared the products upon
which they intend to levy duties if WTO grants retaliation, but U.S.
confectioners are very troubled that our industry will again be
targeted as they were several years ago during the U.S.-Mexico cross-
border trucking dispute.
The longer these disputes are unresolved, the greater the
consequences to the U.S. confectionery industry.
U.S. confectioners urge Congress and the affected industries to
find a resolution that ensures U.S. compliance with international trade
obligations and avoids retaliatory actions against our exports to the
north, and possible retaliation for our exports to the south.

The Chairman. I would like to thank each of the witnesses
for your testimony today.
We will now move into a period of questions by our Members.
I need to note that given the time constraint we are under due
to the Joint Session of Congress, in fact, we need to be out of
this hearing room by around 10:20, 10:25. I ask unanimous
consent that Members limit their questioning to 3\1/2\ minutes.
Without objection, so ordered.
I now recognize myself for 3\1/2\ minutes.
My question is directed to Mr. Wenk and Ms. Dempsey. As I
mentioned in my opening statement, when countries impose non-
tariff trade barriers on U.S. agriculture products, and
encourage other nations to adopt similarly protectionist
policies, we would certainly all expect the United States
Government to fight vigorously against those policies. I also
understand that to criticize other nations for imposing
protectionist barriers to our products means that we must
likewise be critical of our own policies that do the same.
Now, do both the U.S. Chamber of Commerce and the National
Association of Manufacturers consider Country-of-Origin
Labeling a non-tariff trade barrier?
Ms. Dempsey. Yes, the NAM believes that the barrier is, in
fact, a non-tariff trade barrier.
The Chairman. Mr. Wenk?
Mr. Wenk. Yes, we do.
The Chairman. Thank you very much.
I now recognize Mr. Costa for any questions he may have.
Mr. Costa. Thank you very much, Mr. Chairman.
Mr. Smith, you did accounting of the costs that your own
company incurred in trying to comply with it. What was the
timeline in trying to put that together to ensure that you were
in compliance?
Mr. Smith. The timeline for putting the program together,
Mr. Costa?
Mr. Costa. Yes.
Mr. Smith. Okay. When COOL was first implemented,
obviously, we were fortunate in that USDA met with industry,
and sat down and came up effectively with a means by which we
weren't going to dramatically reduce the speed at which
commerce would occur in terms of selling live animals to one
another. As a company, obviously, you try to plan ahead, you
try to expect what some of these difficulties are going to be.
You put together programs, procedures, so that you make certain
that livestock are segregated accordingly, you identify
specific days upon which those cattle will move into your
processing facility, not only what day but what hours of
certain shifts.
Mr. Costa. And you run two shifts there at your operation.
Mr. Smith. Actually, just one, Congressman Costa. We run
two shifts in ground beef production, but the actual harvest
and processing of the carcasses is just one 8 hour shift.
Mr. Costa. But I noted that you export to Asia. Are you
currently exporting any product to Mexico?
Mr. Smith. We are, sir.
Mr. Costa. Or Canada?
Mr. Smith. And it amounts to roughly $1.5 million in value
as far as sales to Mexico.
Mr. Costa. So you are concerned about retaliatory effects
would possibly occur immediately then.
Mr. Smith. Very much so, sir.
Mr. Costa. Yes. I assume you consider this a non-tariff
barrier if enacted?
Mr. Smith. Yes, we do.
Mr. Costa. Mr. LaFaille, you consider it the same?
Mr. LaFaille. Absolutely, Mr. Costa.
Mr. Costa. When we talk about the impact to the wine
industry, that has tried very hard to penetrate foreign
markets, with some success, what potential fallout do you see
in the event that Congress doesn't act if we get the adverse
ruling we are expecting by the end of this year?
Mr. LaFaille. Well, we know that retailers will start to
look at other countries' wines and--rather than ours, even
before retaliatory tariffs will hit. At the same time, once
they hit, consumers, who are definitely price-sensitive, are
going to be looking to less expensive products, and so we know
that this is exactly what happened in Mexico, and it took 7
years to recover.
Mr. Costa. All right. Have we gotten any clarification with
the U.S. Office of Trade Representative as to whether or not
this is a 4 to 6 month process, instead of the 60 days that
some are anticipating?
Mr. LaFaille. I am not certain of that.
Mr. Costa. Anyone else care to opine?
Mr. Johnson. I would only point out that history would
indicate that almost every WTO deadline that they lay out is
not met by some long period of time. They generally are very
late because they are very overworked.
Mr. Costa. Okay.
All right, my time has expired, Mr. Chairman. Thank you. I
will wait until the next round, if there is one.
The Chairman. Thank you, Mr. Costa.
I now recognize Mr. Emmer.
Mr. Emmer. Thank you, Mr. Chairman.
As you know, I come from Minnesota, and when I arrived here
to Congress, some of the advice I received was focus on an area
that is not only in your wheelhouse but it is important to your
state, as opposed to getting involved in everything. Minnesota
is still home to 19 Fortune 500 companies, and our two biggest
private economic drivers are agriculture and manufacturing. Our
state is all about trade, including trade with Canada and
Mexico. In fact, Canada is Minnesota's top export market, and
it is our number one export market for agriculture and
agrifood.
The questions that I have, and I will try to keep them
brief, is first, many of you have talked about the effects of
retaliation to your producers or members, but what would these
retaliations look like to the average person buying a pound of
ground beef at the grocery store, or an office chair at Office
Depot? Can you give me an idea what that will look like to the
consumer?
Ms. Dempsey. Let me start. I mean trade is absolutely vital
not just to produce jobs in industries and agriculture and
services and certainly manufacturing, but it helps give
consumers in the United States choice of quality products,
choice over price. The loss of new opportunities and existing
opportunities in Canada and Mexico that we see resulting from
the retaliatory tariffs that we fully expect Canada and Mexico
to impose, and very likely in 2 months, it will be a short
time, they have waited years on this to resolve this dispute,
that will result in lost opportunities, less efficiency, less
innovation both in our manufacturing sector and others.
Mr. Emmer. It would be great, Mr. Smith, if you could give
me an idea----
Mr. Smith. I don't know if I can necessarily give you a
dollar figure, Congressman, in terms of what the net impact
financially will be to the consumer, but I know that there will
be lost opportunity there in terms of being able to purchase
value-added products.
As a company, this retaliation, and I just want to go on
record to state that it would be more than just potentially the
increased tariffs on beef products that we would market, but as
a large farming operation as well, it will have negative
impacts. I know that on their list the Canadians have
identified cherries, oranges----
Mr. Emmer. Right.
Mr. Smith.--tomato paste, three of the commodities that we
are very big in producing as well.
Mr. Emmer. And I appreciate that. I just was going back to
Mr. Weber's original testimony, and he has a figure in there
that shows Minnesota could lose depending on $2 to $4 billion
in retaliation, somewhere between 250 and 500 jobs. Since we
have short time, the question I want to ask, the last one, to
all of you is, in lieu of the conflicting data that surrounds
the cost and benefits of COOL, does anyone see a solution that
would be satisfactory to all parties involved, and perhaps
maybe not you, Mr. Smith, based on your testimony, but a
solution that would be satisfactory to everyone and WTO
compliant?
Mr. Johnson. Mr. Chairman, if I could take the first crack
at that. It gets to part of your previous question too. There
is no right to retaliate unless there is proven economic
damages. The only evidence introduced to the WTO at this point
is based on proprietary pricing data provided by the CCA in
Canada, and it has been overwhelmingly refuted by publicly
available data in the Taylor study that I referenced.
[Submitted information in response to Mr. Emmer's question
and it is located on p. 71.]
Mr. Emmer. Thank you, Mr. Chairman. That is not really
helpful to me. I was looking for a solution as opposed to an
argument.
So I yield back, Mr. Chairman. And thank I the witnesses
for their time.
The Chairman. The gentleman's time has expired.
Mr. Yoho, 3\1/2\ minutes.
Mr. Yoho. Thank you, Mr. Chairman. I appreciate the
opportunity. I appreciate your testimony.
COOL started in 2002, and it was implemented in 2009. Since
that time, we have had this disgruntlement, the disruption of
the market, the lawsuits and all that, and when I look at the
responsibility of the USDA, is it the responsibility of the
USDA and the government to illustrate the origin of the meat
that the U.S. consumer eats, like Canada and Mexico, or is it a
trade issue?
Mr. Smith, let me ask you first.
Mr. Smith. I am sorry, Congressman, I didn't understand
your question.
Mr. Yoho. Is it the responsibility of the USDA to demand,
or require Country-of-Origin Labeling, or should that be
negotiated in the trade issues like with NAFTA, when NAFTA came
out, should that have been put in there and not after the fact
when NAFTA was negotiated?
Mr. Smith. Right now, USDA has oversight over those
labeling requirements.
Mr. Yoho. I understand that, but should that have been
negotiated in NAFTA when it first happened, instead of after
the fact?
Mr. Smith. Perhaps in hindsight, yes.
Mr. Yoho. All right. My other question is, the COOL label
doesn't make a product safer.
Mr. Smith. That is correct.
Mr. Yoho. It doesn't add to the traceability of a product.
The USDA has sole responsibility of saying a product is
wholesome, healthy and good for the consumer or marketable. And
I don't see the benefit of the COOL labeling, and you guys have
brought it up for the majority of the panel that it has added a
burden to the U.S. producer, it has put us in trade
retaliation. And let us see, probably the best way to go in
this is looking at the complete repeal of that, and I hope out
of this Committee, and with your recommendation, that is the
smartest way to go, and have these things negotiated in trade
agreements. As I said, the labeling doesn't make the product
any safer for the consumer. It doesn't increase the
traceability. In addition, it adds $2 billion to the cost of
meat, which is ultimately paid for by us, the consumer, and it
affects the people at the lower income levels higher.
So with that, we will listen to your recommendations, and I
look forward to working on that so that we can move beyond this
and not have retaliation from our trading partners. And coming
from the State of Florida, I was born in Minnesota like Mr.
Emmer, but my parents had the good sense to move to Florida.
And Canada is Florida's largest trading partner also, and it
would be tough for us. We ship a lot of citrus up there. And I
look forward to working through this so that we build those
alliances with our trading partners stronger so that we keep
agriculture a strong trading tool.
I am going to yield back, Mr. Chairman. And I appreciate
it, and congratulations.
The Chairman. Thank you very much.
The gentleman from Washington, Mr. Newhouse.
Mr. Newhouse. Thank you very much, Mr. Chairman, and you
are doing a great job this morning. Thank you all for being
here and helping us understand the implications of this very
important issue.
Let me take the brief time I have to ask a couple of
questions real quickly. First of all to Mr. Weber and Mr.
Smith, you have talked about the cost of COOL and the
implications that it has had on our industries. Since its
enactment, can you point to anything of benefit, increased
sales, any kinds of an upside to this at all? I am trying to
understand if there is a flipside to this as well.
Mr. Smith. No, sir, we have seen none. And you would think
that as a branded beef company, one of the first branded beef
companies in the U.S., if we saw an economic benefit associated
with being able to identify products coming from a specific
entity, whether it be product of the U.S., we would have, on
our own fruition, approached the USDA, because companies can do
this, and asked to make label claims. We saw no benefit in the
marketplace. We did demographic studies, we asked some of our
customers do you think the end consumer would like to see this
type of information, and almost to a man, they have said no. So
to answer your question, Congressman, we see no benefit
whatsoever, no, sir.
Mr. Newhouse. Mr. Weber, any thoughts?
Mr. Weber. Yes, Congressman. I think I would agree with
that statement. It is very hard to measure any type of economic
benefit from Country-of-Origin Labeling, much more difficult
than it is to label the cost of having to comply with Country-
of-Origin Labeling. The difficulty it presents for packers,
processors, producers, clear down to the retail level, there is
added cost involved and it is hard to pinpoint that in any one
sector, but from an economic benefit, it would be extremely
difficult to say that consumers are benefiting from Country-of-
Origin Labeling.
Mr. Newhouse. Okay, thank you. Mr. Wenk and Ms. Dempsey,
can you tell me if the potential retaliation is having any
impact on our industries already, just the existence of the
potential?
Mr. Wenk. Well, thanks, Congressman. This is a dark cloud
that is forming over U.S. exporters right now, and that is very
much why this hearing today is very timely. And as I said in my
testimony, we believe that the way forward right now is for
Congress to move forward on legislation to repeal the COOL rule
for muscle cuts of meat. And just in Washington, sir, if you
look at our website, www.COOLReform.com, you will see that
there are several products in your state that could be impacted
by retaliatory tariffs; apples, cherries, pears, potatoes,
video game consoles, to name a few. So this is a very urgent
topic, sir, and it is having an impact, and it is a dark cloud
that is forming over our exporters right now.
Mr. Newhouse. Thank you.
Ms. Dempsey. I agree with Mr. Wenk, and would just add that
just as in the United States, customers overseas oftentimes
plan months in advance, and once a decision is made----
Mr. Newhouse. Yes, right.
Ms. Dempsey.--to purchase, they are going to make that
purchase. And so this looming threat of retaliation, which we
believe will be very substantial given the disruption in
Canadian and Mexican trade in this area, will have, and will
have not an effect just on that one sale, but could, as we saw
in the Mexico trucking case, it could affect sales to those
customers for years to come because once you lose that
customer, you are not going to get them back very quickly
again.
Mr. Newhouse. Right. Well, thank you very much.
And, Mr. Chairman, I have gone over. Thank you for your
indulgence.
The Chairman. Thank you very much.
I will now recognize the gentlewoman from Missouri, or
perhaps for the benefit of the other \1/2\ of the population of
that great state, perhaps I should say Missouri, Mrs. Hartzler.
Mrs. Hartzler. Either one works, but I am proud to be a
lifelong farmer and glad to be here today in this very, very
important issue. I appreciate your testimony.
I wanted to start with Mr. Weber and Mr. Smith. Secretary
Vilsack recently stated that if we lose the appeal of the WTO,
Congress essentially has two options; come up with some sort of
generic label, or repeal the current law. So I was just
wondering, has the Secretary approached either of your
organizations to discuss possible alternatives to a full repeal
of COOL?
Mr. Weber. I am not aware that he has approached our
organization as far as a solution to COOL. I think, from our
position, due to the urgency that we have, and I guess I would
like to maybe address Congressman Costa's previous question, it
is 60 days by rule, and we are staring this in our eyes, this
threat of retaliation. The Canadians and the Mexicans are both
ready to move, so I don't think we have much other option other
than repeal of the statute that is causing the problem here.
Mrs. Hartzler. Mr. Smith?
Mr. Smith. I would concur with those remarks. To my
knowledge, the Secretary has not reached out to the beef
industry to ask for their input regarding any potential fix. I
would rely back to my testimony. This is a failed experiment.
In our opinion, it just needs to be repealed. We need to get
rid of it.
Mrs. Hartzler. So if we repeal COOL and the President signs
the legislation into law, do you believe that would immediately
end the threat of retaliation? Everybody.
Ms. Dempsey. Yes. So then Canada and Mexico would not be
WTO authorized to retaliate.
Mrs. Hartzler. Right. Good. Okay, so back to Mr. Wenk and
Mr. Smith. From the outset, many of us had concerns that a
Country-of-Origin Labeling requirement would add cost to the
processing and marketing of meat products, and it seemed that
USDA shared those concerns, and in the 2009 final rule
implementing COOL, USDA estimated that the first year
implementation cost for growers, producers, processors,
wholesalers and retailers would be $2.6 billion, and this was
their original estimate. The rule also stated that the
estimated economic benefits associated with the rule were
``likely to be small.'' So they saw this coming.
So to what extent have cattlemen and pork producers borne
this cost?
Mr. Smith. If you don't mind, I could start. I mean as a
feeder and a packer, I will tell you that most of those costs
right now are being borne within those two segments of the
industry. Now, that is not to say that there are not additional
costs associated with paperwork that occurs back at the ranch
level, but the majority of those costs, in my opinion, have
been absorbed in those two segments of the industry. And it is
primarily just because of the sorting within pens, coolers,
separate, as I mentioned, fabrication sets, labeling
requirements, et cetera.
Mrs. Hartzler. Is that passed on to the consumer? Have
costs been passed on to the consumer as a result of this rule?
Mr. Smith. A portion of those have, yes, ma'am. Some of
them have been sent backwards, back through the production
channel, and that is the reason that the Mexican Government and
the Canadian Government are angry, because that negative
economic signal is being sent to them in one direction in those
direct costs, but then the indirect costs, the lack of
production efficiencies because some of the difficulties we
have, and some of the decisions our customers have made
regarding whether they will carry two separate labels in their
retail stores, those are indirect costs that the consumer
bears.
Mrs. Hartzler. Clearly, there is no upside to this. It is
not good for America, it is not good for the producers, the
processors, and it is not good for the mom that goes to the
grocery stores having to pay more for products. And so we
really do need to repeal it.
Mr. Weber. I would pretty much agree with Mr. Smith's
comments on that. If you just picture our industry. We have the
processor in the middle that is really caught in the endgame in
this thing, and they work on a margin, and I guarantee you they
are going to pass those margins forward, and as much as they
can, back to us as producers on the farm. And that is why I
mentioned it is hard to actually know exactly what it is
costing because that is exactly what happens; it spreads out
through the economy. But there is no question that there is
added cost with segregation of the product and distribution of
the product. It becomes almost an impossible situation for
them, and that is what has been passed down to us as producers.
And so there are many costs involved.
Mrs. Hartzler. Thank you.
The Chairman. The gentlewoman's time has expired.
We are within our time constraints, so we will move into
round two. I have a question for you, Mr. Weber.
The U.S. has imported millions of feeder pigs from Canada.
These feeder pigs have been essential to help fully utilize
pork producing capacity in the United States. For the record
has, Mandatory Country-of-Origin Labeling had an effect on the
availability of those feeder pigs?
Mr. Weber. The feeder pigs are available, but the number of
pigs willing to come into this country has been affected, and
that is clearly the case that Canada--one of the topics that
Canada has. I have fellow producers in my state that have been
impacted by this because they haven't got a market for the
Canadian pigs, and that occurred early on. So it is not a
matter--to me it isn't an issue of availability. The pigs are
available, there are still approximately 75,000 feeder pigs a
week coming into this country, high-quality pigs. The issue at
hand here is the retaliation that our industry is facing. We
absolutely have to avoid retaliation. We have come through a
very difficult marketing period in the pork industry.
Obviously, with PED we had some high prices. Those prices are
less than \1/2\ of that today. We are negotiating a major free
trade agreement and we want to be represented as a country that
lives up to its trade agreements, and so we just need to avoid
this retaliation by WTO--or by Canada and Mexico.
The Chairman. Thank you, Mr. Weber.
Mr. Costa.
Mr. Costa. Thank you again, Mr. Chairman.
Both Mr. Smith and Mr. Weber, I believe, testified earlier
that in the event of the adverse ruling that we have discussed,
and retaliatory action is taken by Canada and Mexico, that the
solution to this issue would be to repeal the law. With the
exception of Mr. Johnson, do the other witnesses concur with
Mr. Smith and Mr. Weber? You can nod your head.
Voice. Absolutely, sir.
Mr. Costa. Yes. There has been some discussion as an
alternative, and I would like to get your reaction to it, if
those course of events take place that we develop a North
American label. And I would like to get your reaction to a
North American label, and maybe we can begin with Mr. Johnson
since I am certain you don't favor repealing it.
Mr. Johnson. Thank you, Congressman. You are correct, we do
not favor repealing it. We think actually that the best way to
deal with this is to get the decision from the WTO----
Mr. Costa. No, I understand that----
Mr. Johnson.--and then----
Mr. Costa.--but I am talking about in the event of an
adverse decision----
Mr. Johnson. Yes.
Mr. Costa.--what is your thought on a North American label?
Mr. Johnson. Well, we would initially be inclined to oppose
a North American label, but----
Mr. Costa. Okay.
Mr. Johnson.--it is very important that you look at the
actual decision, because we believe that there can be a very
narrow fix that can be applied. Every WTO decision that has
been made, there have now been three of them, has been narrower
than the one before it.
Mr. Costa. Okay.
Mr. Johnson. We have every expectation the same thing would
happen this time.
Mr. Costa. Mr. Smith, would you care--Mr. Weber, or any
other of the witnesses, to react to a North American label?
Ms. Dempsey. I would just say that it is critical from our
perspective and that of the COOL Reform Coalition that we
eliminate the possibility of retaliation immediately. And so if
we put ourselves in a situation of developing yet another
legislative mandate that is viewed as WTO inconsistent, and
until one sees the details of such a rule it is very difficult
to expect that Canada and Mexico are going to wait in terms of
the retaliation. First and foremost, and as Mr. Wenk testified,
our coalition has looked for lots of other alternatives along
the way to try to promote resolution of this, but at this
point, time has run out----
Mr. Costa. Mr. Wenk?
Ms. Dempsey.--and so we need to see the----
Mr. Costa. Yes.
Ms. Dempsey.--repeal of this rule, and then if there is
work that needs to be done with Canada and Mexico to figure out
another solution, then so be it.
Mr. Costa. Yes.
Mr. Weber. I would agree with Ms. Dempsey fully in her
comments that it----
Mr. Costa. Mr. Smith, Mr. Wenk, do you care to comment?
Mr. Smith. Congressman Costa, I would agree wholeheartedly
as well, yes. I mean I don't think we have the luxury to
propose another potential fix. We have tried that twice now. It
has not worked. As I mentioned, the clock is ticking. Let us
repeal it.
Mr. Wenk. I completely concur. The reality is that we don't
have a lot of time, Congressman, we are not in the driver's
seat right now. We are days away from a final WTO ruling, so
that is why it is urgent that Congress acts.
Mr. Costa. All right. Thank you, Mr. Chairman. I yield back
the balance of my time.
The Chairman. I see we are now 10 minutes after 10:00, so
we have about 10 minutes here.
Mr. Newhouse, have any follow-up?
Mr. Newhouse. Thank you, Mr. Chairman. Just one line of
questioning perhaps we haven't explored yet.
Certainly, we have talked about some of the negative
impacts of retaliation, but are there other consequences of the
U.S. being out of compliance with its trade obligations? And
being out of compliance with WTO obligations, what does that do
to the development of other opportunities perhaps in the
marketplace internationally?
Mr. Smith. I would offer just briefly. I mean that concept
to do as I say, not as I do won't fly very well. It will pose
astronomical challenges moving ahead, trying to negotiate any
further trade agreement with any other countries.
Ms. Dempsey. I would just say from the manufacturing
perspective, we already face a lot of trade barriers overseas
on which we are trying to get resolution. There is over $12
trillion traded in manufactured goods worldwide, and the United
States has nine percent of that. That world trade in
manufactured goods is about three times the size of all
consumption of manufactured goods in the United States. So if
we are going to grow our economy, we need to do more. And so
putting the United States out of its traditional leadership
role in the world economy to make us a bad actor will tell the
rest of the world that they can go ahead and impose additional
barriers. And in a time that we are negotiating two big trade
agreements to try to level the playing field, to try to have
fair trade so we can get better access to the world's markets,
this type of action and our continued lack of compliance with
WTO rules is really costing our leadership.
Mr. Weber. I would fully agree with those comments. We have
to be portrayed as a respectable trading partner in these
negotiations. And believe me, we are all aware of it in this
room here, that market access is extremely difficult, and world
trade is extremely competitive, and we have to be portrayed as
a respectable trading partner.
Mr. Wenk. I would just----
Ms. Bodor. I would----
Mr. Wenk.--add to what Ms. Dempsey said. We helped write
the rules of the World Trade Organization, so we ignore those
rules at our own peril. And it just doesn't make sense for us
to ask other countries to follow the rules and that we don't
have to follow those rules. And, there are many instances where
we have brought cases against other countries for
discriminatory practices they have brought against us, and most
recently India, we brought a case against India in the WTO in
terms of agriculture products. So if we expect other countries
to abide by these rules, we need to do the same.
Mr. Newhouse. Yes.
Ms. Bodor. I would also add from a small business
perspective, it increases the lack of confidence in putting
forth the investment that it takes to open up these markets. So
companies need to be sure that when they make that investment,
that it is going to stay for the long-term. Now, for the
confectionary industry, we are facing the second set of
retaliatory duties in 10 years, and that makes it difficult for
companies to go the next step to make the investment that is
necessary if they don't believe that the marketplace will last.
Mr. Newhouse. Okay.
Mr. Johnson. If I could, I would argue that we also need to
defend our position here. In the WTO proceedings, it was
pointed out that some 70 countries who are members of the WTO
have very similar Country-of-Origin Labeling rules. The WTO has
never found against the law; they have found against how it was
implemented. And so we ought to be precise about how we come
into compliance, not simply throw out the law.
Mr. Newhouse. Yes. I appreciate all your testimonies today.
And again, thank you, Mr. Chairman.
The Chairman. Thank you.
Mrs. Hartzler.
Mrs. Hartzler. Thank you, Mr. Chairman.
Mr. Smith, I wanted to explore some other implications. We
talked about economic cost, but in your opinion, do you believe
that Mandatory Country-of-Origin Labeling has had an effect on
consolidation within the beef cattle industry?
Mr. Smith. That is a touchy issue, and I will need to tread
lightly. I mean intuitively, it would suggest that it does have
an impact on further consolidation. I mean let us be honest
with one another, it is the large companies that have the
economic wherewithal to implement procedures, purchase
equipment, to come in compliance with some of these additional
burdens that are placed on them, and smaller companies don't
necessarily have that luxury. There is an indirect impact on
consolidation as a result of some of these rules, yes, ma'am.
Mrs. Hartzler. Makes sense. How has Country Origin of
Labeling impacted the demand for Canadian cattle, and how could
this impact the level of retaliation the U.S. will face if we
lose the WTO appeal?
Mr. Smith. Unfortunately, I don't have a lot of experience
with Canadian cattle. We don't purchase Canadian cattle, but
the symbolism would be the same and we do purchase quite a few
cattle of Mexican origin.
Mrs. Hartzler. Yes.
Mr. Smith. So it will pose some challenges. I mean if those
retaliations go into play, it could make it more difficult to
be able to source the live animals that are necessary to be
brought into the production system.
Mrs. Hartzler. Okay. Ms. Bodor, we share your concerns if
the U.S. loses its appeal, Canada and Mexico may take
retaliatory actions against confectionary exports. So do you
have an estimate of the economic damage this could cause your
industry if we fail to repeal Mandatory Country-of-Origin
Labeling for meat?
Ms. Bodor. For confectionary on the tariff codes that
Canada has already identified, we believe we will lose those
exports. At 100 percent duty, we cannot export those products
into Canada.
As I mentioned earlier, when we faced a 20 percent duty on
these products in Mexico, we lost 50 percent of our exports. So
100 percent is really unlikely that we would be able to
recover. And then we would also--because there are competitors
who are willing to jump in from Europe and from China, from
other marketplaces--we would be put in the position of having
to crawl back and try and regain that market share, and that
takes a long time.
Mrs. Hartzler. Okay. Years.
Ms. Bodor. Yes.
Mrs. Hartzler. Very serious. Thank you very much.
I yield back, Mr. Chairman.
The Chairman. Thank you. I want to thank each of our
witnesses for appearing today, and I appreciate your testimony
very much.
Just a closing comment from myself. I have observed over a
long period of time that our trade agreements are incredibly
important to growing the economy here in the United States,
particularly important for agriculture, our poultry and pork
industries specifically as it relates to my district. And it is
also my experience that in all these trade negotiations, past,
present and future, everybody around the world has an axe to
grind, no use in giving them another axe.
And with that, let me adjourn the hearing. Under the rules
of the Committee, the record of today's hearing will remain
open for 10 calendar days to receive additional material, and
supplementary written responses from the witnesses to any
question posed by a Member.
This Subcommittee on Livestock and Foreign Agriculture
hearing is now adjourned.
[Whereupon, at 10:17 a.m., the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Supplementary Material Submitted by Roger Johnson, President, National
Farmers Union
Many of my colleagues on the panel testified in favor of repealing
the Country-of-Origin Labeling (COOL) law. Canadian Minister of
Agriculture and Agri-Food Gerry Ritz has called for full repeal of the
law, as have several Members of Congress and interest groups.
Repealing the law would remove origin labels from ground and muscle
cuts of beef, lamb, and pork. It would also remove origin labels from
fish and shellfish, peanuts, fresh and frozen fruits and vegetables,
goat meat, chicken, pecans, macadamia nuts, and ginseng. Beyond the
ground and muscle cuts of beef, lamb, and pork, all other covered
commodities are beyond the scope of the World Trade Organization (WTO)
dispute. The WTO dispute only applies to muscle cuts of beef, lamb, and
pork. Full repeal of the COOL law would remove an important piece of
information that consumers have time and time again indicated they want
to know--the country-of-origin. National Farmers Union would also
oppose removing beef, pork, and lamb from the scope of the law. These
labels have been around since the 1890s in one form or another.
Consumers have the ability to determine where every piece of their
automobile originated or where their T-shirt was made. As consumers
become more and more interested in the food system and where and how
their food was produced, it only makes sense to affix an origin label
on food. The labels are common sense and applied throughout every
industry.
Because the WTO has narrowed the scope of noncompliance of the
regulations with each subsequent ruling, Congress should wait to see
what the WTO Appellate Body reports before suggesting any changes to
the law. The Appellate Body may find the U.S. is compliant or it may
identify a very simple fix to the type of label or labels that would
give Congress direction should any legislative change be required.
______

Submitted Statement by Hon. Rod Blum, a Representative in Congress from
Iowa
I wish to thank the House Committee on Agriculture, particularly,
Chairman Conaway and Ranking Member Peterson, as well as Livestock and
Foreign Agriculture Subcommittee Chairman Rouzer and Ranking Member
Costa for permitting me the opportunity to submit these remarks and
express my ongoing concerns on behalf of my constituents in the First
District of Iowa. I appreciate the willingness of the Committee to
explore legislative solutions for the issues that implementation of the
mandatory Country-of-Origin Labeling (COOL) presents to agriculture.
As the Committee is aware, COOL is a product from the 2002 Farm
Bill which requires labeling of fresh beef, pork, and lamb but exempts
processed meats and food items. However, this provision has been
challenged by Canada under the authority of the World Trade
Organization (WTO), which was subsequently appealed by the U.S.
Unfortunately, the WTO is likely to rule against our appeal of
their decision that implementation of COOL constitutes a trade barrier
for our closest trading partners, Canada and Mexico. This decision
permits our friends and partners to institute retaliatory tariffs on
U.S. products.
I feel this outcome is most unfortunate. The First District of Iowa
is home to a great number of agricultural producers that are either
directly affected by COOL, or used as ingredients in the expanded list
of products that are threatened with these tariffs. Implementation of
these measures would have a severe negative impact on producers, their
livelihoods, the employees, and directly and indirectly related
businesses.
Additionally, to date, only Canada has made public their intentions
regarding the WTO decision. Mexico has yet to release a retaliatory
tariff list, so this terrible situation might be of even a greater
magnitude than the industry anticipates.
I commend the Committee for beginning the legislative process in
order to properly address these concerns before these tariffs begin to
negatively affect producers in my district and across the country. I
remain hopeful that Congress, along with consultation from U.S.
Secretary of Agriculture Vilsack, can come to an agreement on
legislation that satisfies the requirements of the WTO and avoid
disruptions to the economic trade between the U.S., Canada, and Mexico.
______

Submitted Letter by Brad Figel, Vice President, Public Affairs, Mars,
Incorporated
March 25, 2015

Hon. K. Michael Conaway,
Chairman,
House Committee on Agriculture,
Washington, D.C.

RE: Subcommittee on Livestock and Foreign Agriculture's hearing to
examine the implications of potential retaliatory measures
taken against the United States in response to meat
labeling requirements

Dear Chairman Conaway:

On behalf of Mars, Incorporated (``Mars''), we appreciate the
opportunity to submit comments to the House Agriculture Subcommittee on
Livestock and Foreign Agriculture's hearing to examine the implications
of potential retaliatory measures taken against the United States in
response to meat labeling requirements.
As a U.S.-based company with international operations, it is very
important to Mars that Congress immediately resolve the issue of the
current U.S. country-of-origin labeling (``COOL'') requirements in
dispute in the World Trade Organization (``WTO''), as the United States
has less than 60 days to take action before the WTO makes its final
decision on whether these measures are in violation of international
trade rules. If this matter is not resolved, we are deeply concerned
about the prospect of impending retaliation by Canada and Mexico.
Retaliation will have a devastating, broad economic effect on American
families and a wide range of companies, including ours.
We are extremely proud that Mars is a family-owned, U.S.-based
company that has invested in our economy and communities since 1911. As
a leading food company, we have more than 26,000 associates in the
United States and more than 75,000 Associates worldwide. Our company
includes six business segments: Petcare, Chocolate, Wrigley, Food,
Drinks, and Mars Symbioscience, and we generate more than $33 billion
in annual revenue.
Mars is very concerned about the possible retaliatory actions of
Canada and Mexico because we anticipate that they will have a direct
economic impact on our business. On its draft retaliation list, Canada
included finished products and agricultural commodities and materials
relevant to our business. Mexico has not yet announced its retaliation
list, which has caused greater uncertainty with respect to our cross-
border operations.
To avoid retaliatory actions by Mexico and Canada, Mars has been a
constructive player and leader in seeking a resolution to resolve this
issue. We continue to be a highly active member of the COOL Reform
Coalition, which has worked since last year to ensure that the United
States complies with its WTO obligations. In fact, the Coalition
proposed and advocated for several approaches to resolve this issue.
Given the United States' position as a global leader and a major
exporter, including of agricultural goods, it is critically important
that we remain a good actor in complying with our WTO obligations. U.S.
food and agricultural producers depend on exports, and agricultural
exports support over one million U.S. jobs on and off the farm. If the
United States does not demonstrate its commitment to international
trade rules by adhering to them, how can we expect other countries,
whose markets we depend on for our exports, to comply with the rules?
For Mars and other companies that support U.S. jobs by manufacturing in
and exporting from the United States, access to other markets often
depends on our trading partners' compliance with WTO rules.
Further, the United States' credibility on global trade issues
carries particular significance when we are actively negotiating new,
far-reaching agreements--the Trans-Pacific Partnership and Trans-
Atlantic Trade and Investment Partnership agreements--and at the same
time, seeking to reauthorize Trade Promotion Authority. We cannot
afford to send a message that the United States will not abide by and
implement its international trade obligations.
The United States also has a responsibility to protect its
important trading relationship with Canada and Mexico. Many businesses,
including ours, rely on the open market that the North American Free
Trade Agreement created for U.S. exports. We can and should avoid
retaliatory tariffs by fully complying with the panel and Appellate
Body reports through the repeal of the current COOL requirements for
muscle cuts of meat. Therefore, we support prompt Congressional action
that brings the United States into compliance with its WTO obligations
related to COOL. Once again, we thank you for the opportunity to
comment.
Sincerely,

Brad Figel,
Vice President, Public Affairs,
Mars, Incorporated.
______

Submitted Letter by Ben Mosely, Vice President, Government Affairs, USA
Rice Federation
March 25, 2015

Hon. David Rouzer,
United States House of Representatives,
Washington, D.C.

Dear Congressman Rouzer:

The USA Rice Federation appreciates the opportunity to submit a
written statement regarding today's Livestock and Foreign Agriculture
Subcommittee's hearing on Meat Labeling Requirements. USA Rice is the
global advocate for all segments of the U.S. rice industry with a
mission to promote and protect the interests of producers, millers,
merchants and allied businesses. USA Rice is made up of the USA Rice
Producers' Group, the USA Rice Millers' Association, the USA Rice
Council and the USA Rice Merchants' Association.
USA Rice members and our customers in Canada and Mexico--two of the
top five export markets for U.S. rice--are vitally concerned over
possible retaliation against exports of U.S. rice if the United States
is found, once again, to be out of compliance with its international
obligations in the World Trade Organization (WTO). USA Rice is a strong
supporter of WTO compliance and requests that Congress and the
Administration take steps necessary to reform the Country-of-Origin
Labeling (COOL) rule, thereby avoiding massive retaliation threatened
against our industry by Canada and Mexico.
The Country-of-Origin Labeling rule pertains to mandatory labeling
on muscle cuts of meat, detailing the country in which the animal was
born, raised, and slaughtered on all meat sold in the United States.
Canada and Mexico have consistently opposed this rule, stating that it
unfairly discriminates against meat originating or being processed
within their borders. After filing a dispute claim with the WTO in
2012, and then again in 2013, WTO panels have time and again agreed
that the COOL rule violates the U.S.'s international trade obligations.
Canada and Mexico are planning to retaliate against COOL by
introducing tariffs on a number of goods produced in the United States.
Canada has released its retaliation list, and it heavily penalizes U.S.
agriculture, including a 100 percent import tariff on rice. While
Mexico, which is the United States' number one rice export market, has
not released a retaliation list, there is every reason to believe that
rice will make an appearance there as well. Import tariffs on U.S. rice
would seriously threaten the U.S. dominant market share in these two
vital export markets.
Losing two markets among the top five for U.S. rice would cause
serious economic harm in the six rice producing states: Arkansas,
Louisiana, Texas, Missouri, Mississippi and California. On average, the
U.S. rice industry exports $350 million in product to Mexico and $177
million to Canada yearly. This accounts for a full quarter of our
exports to world markets. With final adjudication due out this spring,
Canada and Mexico may be allowed to retaliate as early as later this
year. The longer we remain out of compliance, however, the longer we
are threatening real commercial harm to U.S. exports. Keeping the COOL
rule on the books as it is and allowing this retaliation to occur will
result in reported damages to U.S. exports of an estimated $1 billion
to over $2 billion.
The USA Rice Federation strongly supports coming into compliance
with our WTO obligations. We do not have a position on the future
construction of a COOL regulation, only that such regulation be
compliant with our international obligations, and not have a negative
impact on our and other agricultural industries' exports.
We appreciate the opportunity to have our statements entered into
the record. Please have your staff contact me at [Redacted] or
[Redacted] for any additional assistance.
Sincerely,

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Ben Mosely,
Vice President, Government Affairs.

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