Washington Insider -- Wednesday

WTO Still Not Impressed by U.S. COOL Law

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Canada Preparing COOL Retaliation List With an Eye to Mid-Term Elections

Canadian Agriculture Minister Gerry Ritz said his government is preparing a list of U.S. products against which it will retaliate if the United States fails to drop its country of origin labeling regulations governing imported meat and live animals. That list is being compiled with the goal of causing the maximum economic pain across the largest number of U.S. congressional districts and Canada plans to release it prior to the November elections in this country.

Canada already has published a proposed list of 32 U.S. products against which retaliation could be taken, ranging from "California wines to Minnesota mattresses," but Ritz says the list is a "living document" that could be amended to focus retaliation on specific areas in the United States as a way to increase the pressure on those running for office next month.

More than 100 members of Congress already have gone on record as supporting the position taken by Canada and Mexico on COOL, he said. Whether Canada's plan will work as intended or backfire during the election campaign remains to be seen. But Ritz made it clear that regardless of the U.S. reaction, Canada will not "blink" in its opposition to having the COOL provisions fully withdrawn and he rejected suggestions that an administrative solution could be reached that would meet Canada's concerns. (Also see longer article below.)

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GAO: Selling More U.S. Oil Would Cause Price to Decline

The Government Accountability Office this week issued a report on the nation's petroleum industry that comes to a somewhat counterintuitive conclusion. The agency said lifting the ban on exports of U.S. oil that has stood since the Arab oil embargo of the 1970s would lower, not increase, the retail price of gasoline in this country.

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GAO's reasoning is that if the United States pumps more oil into the global market, the effect would be to lower international prices of crude oil, a key component in determining domestic retail gasoline prices. According to GAO, and based on interviews with industry experts and previous studies, the international oil benchmarks help determine retail prices more than domestic ones do.

In conclusion, GAO said, "Removing crude oil export restrictions is likely to increase domestic crude oil prices but decrease consumer fuel prices." The problem in all this is that any savings for U.S. drivers would depend largely upon global market prices continuing to influence prices at the pump and on whether U.S. oil supplies have enough sway to bring down international prices. Those are rather large caveats.

We know that selling more U.S. oil into the international market would be good for U.S. oil companies immediately. Whether it also would be good for the driving public -- and would continue to be so in the future -- is less certain.

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Washington Insider: WTO Still Not Impressed by U.S. COOL Law

The word has been out for some time, sort of, that the World Trade Organization had completed its second review of U.S. country of origin labeling policy. But, that news also was tempered by suggestions that the decision was "mixed" and included some nods to U.S. COOL advocates. Now that the WTO has announced that the revised policy still does not do enough to address the complaints raised by Mexico and Canada, it also raises questions about what comes next.

The background is that WTO ruled in June 2012 that the COOL law discriminated against Mexico and Canada because it resulted in "less-favorable treatment of pork and beef" from those countries shipped into the United States.

As a result, USDA modified the regulation last May and argued that the changes addressed the WTO issues. However, the ruling issued this week says that is not so -- and that not enough was done on all fronts in the Canadian and Mexican complaint brought against the U.S. program. The United States is substantially embarrassed by the ruling.

In terms of next steps, Canadian and Mexican officials indicate that they have long been convinced that the policy is "clearly protectionist" and a "blatant breach of its international obligations as a member of the WTO." Key Canadian and Mexican trade and agriculture officials issued a statement that says both Canada and Mexico want the United States to repeal its COOL legislation and they openly threatened that they will monitor the U.S. reaction and seek "authorization to implement retaliatory measures on U.S. agricultural and non-agricultural products" if the United States fails to adhere to WTO rules.

In that connection, the potential sanctions are seen as quite significant. For example, Canada has threatened retaliatory trade actions that could affect domestic meat producers by $2 billion and has said they will target nearly 40 U.S. products including beef, pork, poultry, cherries, chocolate and frozen orange juice if the United States fails to comply. Mexico has yet to release a list of U.S. products it would target.

So, while it is not clear what the next step will be for the United States, there is talk of a push for some kind of negotiation. An unnamed U.S. official was quoted by Reuters as saying, "A negotiated solution, not further litigation at the WTO, is the most realistic path to getting this issue resolved in the near-term. Allowing this case to wait for resolution in Geneva will only prolong the market uncertainty we've seen on all sides of this issue."

This type of strategy is believable following, as it does, the $300 million negotiated settlement with Brazil over U.S. cotton policies. However, that negotiation earned the United States significant criticism on the grounds that U.S. taxpayer funds were used to let cotton producers end litigation without satisfying the WTO ruling itself. If that were to happen in this case an even greater outcry could be expected, observers suggest.

The press indicates that industry reactions have been predictable. The U.S. Cattlemen's Association argues the "WTO has never said we cannot require country-of-origin labeling," said USCA President Danni Beer. "The WTO has only explained that COOL has to be implemented in a way that conveys sufficient origin information to the consumer. USCA strongly supported the revised COOL regulations issued in response to that original WTO decision, and we continue to believe those rules are WTO consistent." The WTO, however, disagrees.

Senate Ag Committee Chairwoman Debbie Stabenow, D-Mich., said she would now work to find a solution that will address issues raised by the WTO. "The World Trade Organization has once again ruled that consumers have a right to know where their food comes from," said Stabenow somewhat strangely. "We can spend decades litigating this issue at the WTO, or we can work together to find a solution that encourages international trade and gives consumers what they need to make choices for their families."

So, the policy likely will be once again tossed back to the politicians who seem determined to discriminate against Canadian and Mexican livestock, primarily the feeder livestock that consumers have never shown much interest in keeping out. Since USDA has not found an acceptable solution, perhaps the best answer is to once again support voluntary labeling and let consumers solve the problem with their dollars, if they will. It appears the current approaches cannot be made to work, Washington Insider believes.


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(GH/CZ)

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