COOL Compliance updated.....

In one of the first blog posts to this site, I wrote about Country of Origin Labelling (COOL) requirements imposed by Congress on a range of agricultural products sold in the United States (Link to that original post here).

As I argued in that post, COOL and similar measures are likely here to stay. However, I also noted that the World Trade Organization would soon rule on whether COOL provisions were being applied in a discriminatory manner that violated the WTO's rules. It has certainly been Canada's position (and Mexico's) that the way COOL was being applied was highly discriminatory. It seems the WTO agreed. Earlier this week, the WTO issued a Compliance Panel ruling that said COOL remained uncool; in 2012, the WTO's Appellate body reaffirmed the original 2011 finding that COOL was being applied in a discriminatory manner and called on the U.S. to bring it into compliance. The Compliance Panel assessed whether the U.S. has done so. It has not. (Link here to see dispute summary and documents).

Okay, now what?


It's important to note that the WTO's Dispute Settlement Understanding does act as something of an arbiter of disputes, but lacks the authority to actually compel changes; sovereignty has always been a core principle within the GATT/WTO structure. The United States is considering whether to appeal this latest ruling. However, assuming there is an appeal and the WTO's Appellate Body again sees things Canada's way, such an outcome is nevertheless a double-edged sword for Canada and Mexico.

At that stage of the process, the WTO could authorize "trade restrictions." Yet, all they are really doing is giving their blessing to the "rescinding of concessions." In other words, Canada and Mexico can take back tariff concessions on US products that were made in previous rounds of negotiations. Nothing in this ruling on COOL can compel the US to change its legislation on the matter. All Canada can do is try and hurt American exporters (and thereby indirectly pressure Congress to change COOL) by rescinding previously granted concessions.
 
While Canada and Mexico could "rescind concessions," and will likely try and do so vis-a-vis American products from congressional districts represented by Members who support COOL, doing so is a double-edged sword since it means restricting trade, raising import prices for consumers, and undermining sectors of the Canadian and Mexican economies who rely on U.S. imports. Moreover, it's unlikely to bring about a change in COOL.

A prime example of this kind of "stalemate" within the WTO system is a dispute from the mid-1990s over government subsidies to commercial aircraft manufacturers. The world's largest manufacturers of the small regional-jets so popular with airlines happen to be Canada's Bombardier and Brazil's Embraer. It is a highly competitive global market in a economic sector full of hi-skill, hi-tech, and hi-wage jobs with plenty of domestic political sensitivities in Canada and Brazil. In the mid-1990s, Canada and Brazil accused each other of unfairly subsidizing the manufacture and sale of regional aircraft to the world's airlines (See links to WTO summaries and documents for Brazil's claim against Canada here and Canada's claim against Brazil here).

After 6 years of litigation in the WTO, the final conclusion was that both sides were guilty of subsidies inconsistent with global trading rules. Both were eventually permitted to "rescind" concessions from each other. Both continue heavily subsidizing the production of aircraft. Those interested in reading about this dispute would do well to read Andrea Goldstien and Steven McGuire's 2004 piece on strategic trade policy in the context of this dispute in The World Economy (link here).