U.S. Pans Canadian, Mexican Calculations of COOL Impact

The International Trade Practice Center on Bloomberg Law® provides in one comprehensive, time-saving resource.

By Bryce Baschuk

Sept. 15 — The U.S. delegation to the World Trade Organization rejected the models Canada and Mexico used to calculate their proposed damages from U.S. country-of-origin labeling (COOL) rules during a Sept. 15 arbitration hearing in Geneva.

The WTO in May ruled that U.S. COOL rules, which require meat producers to indicate on retail packaging where each animal was born, raised and slaughtered, accord less favorable treatment to imported meat than to domestic products, in violation of international trade rules.

The U.S. said Canada and Mexico's combined request for $3.21 billion in annual damages stemming from COOL rules was not consistent with WTO dispute settlement rules because the amount is calculated based on inaccurate data, incorrect assumptions and cherry-picked variables.

As the objecting party in the COOL arbitration case, the U.S. bears the burden of proof of establishing a prima facie case that the level of suspension proposed by Canada and Mexico is not equivalent to the level of nullification or impairment caused by the COOL measures.

$90.8M Annual Impact

The U.S. alleged that Canada and Mexico's trade impact analyses were “insufficient” to isolate the effects of the amended COOL measures and suggested that more accurate estimates could be found through the use of an equilibrium displacement model (EDM).

Canada's $2.5 billion concession request is derived from econometric modeling that uses statistical analysis to evaluate actual data in order to assess the impact of policy changes on export prices and quantities. Mexico calculated its $713 million estimate based on a mix of econometric modeling for its price analysis and simulation modeling for its quantity analysis, according to the U.S.

The U.S. delegation said neither method is accurate because they are both “inappropriate for the question at issue, are formulated incorrectly and produce highly inflated levels of nullification and impairment.”

Using an EDM model—which applies “inter-related supply and demand equations based on actual 2014 price and quantity [data]”—the U.S. found that the marginal increase in exports from the elimination of COOL rules would total $43.22 million per year for Canada and $47.55 million per year for Mexico.

‘Devastating’ Canadian Losses

The Canadian delegation countered that the EDM model is incorrect because it “relies on simulations without any connection to reality” and fails to use “real data to measure the impact” of COOL rules.

The U.S. claim that it uses real-world data in its calculations is a “red herring,” Canada said. Specifically, the U.S. uses some calculations that are based on arbitrary decisions and are founded on “fatally unrealistic assumptions,” Canada said.

“Many of the assumptions upon which the U.S. model is based are completely at odds with reality,” Canada said.

In contrast, Canada's methodology is “fundamentally sound and accurately represents the devastating losses Canada has been suffering for seven years,” the Canadian delegation said.

EDM Model Unreasonable

Mexico also defended its COOL calculations, which it said were supported by a “thorough and sound economic justification” and are “consistent with well-established economic and econometric methodologies.”

“Mexico has put forward a comprehensive and well-supported estimate of the nullification and impairment caused by the COOL measure, and the United States has not met its burden to demonstrate that Mexico's calculations are wrong,” the Mexican delegation said.

Mexico said the U.S. failed to demonstrate that Mexico's model and estimates do not adhere to WTO rules and also said the U.S. EDM model does not present a “reasonable or justifiable approach” to the issue, Mexico said.

Specifically, Mexico said there is “no methodological reason” why an EDM should be used to evaluate the impact of the COOL measure when there is relevant data available for an “econometric analysis.”

Mexico further argued that the U.S. model is “calibrated using short-run elasticities, while the full impact of the COOL measure can only be measured with a long-run economic analysis. The use of short-run analysis grossly underestimates the impact of the COOL measure.”

The two-day arbitration hearing will resume on Sept. 16, and arbitrators will evaluate the accuracy of the U.S. model to calculate harm caused by COOL rules.

To contact the reporter on this story: Bryce Baschuk in Geneva at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton in Washington at jashton@bna.com


Request International Trade Practice Center on Bloomberg Law