US–COOL Retaliation: The WTO's Article 22.6 Arbitration

Abstract

This paper examines the World Trade Organization's Article 22.6 arbitration report on the dispute over the United States’ country of origin labeling (US–COOL) regulation for meat products. At prior phases of the legal process, a WTO Panel and the Appellate Body had sided with Canada and Mexico by finding that the US regulation had negatively affected their exports of livestock – cattle and hogs – to the US market. The arbitrators authorized Canada and Mexico to retaliate by over $1 billion against US exports – the second largest authorized retaliation on record and only the twelfth WTO dispute to reach the stage of an arbitration report. Our legal–economic analysis focuses on several issues in the arbitration report. First, the complainants requested that, to compute the permissible retaliation limit, the arbitrators consider a new formula that would include the effects of domestic price suppression. We present a simple, economics-based model to explain the arbitrators’ rejection of this proposal. Second, we provide market context for the $1 billion finding. The arbitrators relied on the trade effects’ formula, which sets the retaliation limit as equivalent to the perceived loss of export revenue from the WTO violation. We argue that this amount was implausibly large, given the conditions in the US market for cattle and hogs during this period. We then describe the challenges facing arbitrators as they construct such estimates, including those likely to have arisen in this dispute.

What If? Tinkering with the Counterfactual: A Comment on US–Washing Machines (Article 22.6-US)

“…At any rate, it cannot adjudicate a sum higher than what has been requested (even if, in its view, this sum falls short of the damage suffered). Case law, as reported in Bown and Brewster (2017), is clear on this score.…”

“…In EC-Bananas III (Article 22.6-EC), the Arbitrator, once again without explaining too much why, made cross-retaliation onerous. Bown and Brewster (2017) provide an excellent survey of all cases involving evaluation of countermeasures, which have consistently taken the form of suspension of tariff concessions. Korea made some additional requests, including a request to retaliate against the unlawful imposition of countervailing duties (CVDs).…”

Making Sense of the Arbitrator's Ruling in DS 316, EC and Certain Member States – Measures Affecting Trade in Large Civil Aircraft (Article 22.6-EC): A Jigsaw Puzzle with (at Least) a Couple Missing Pieces

“… 8 United States – Certain Country of Origin Labelling (COOL) Requirements ( US–COOL ), WT/DS384; Mavroidis and Saggi (2014), and Bown and Brewster (2017) discuss this case.…”

Foot-and-Mouth Disease and Argentina's Beef Exports: The WTO's US–Animals Dispute

“… 6 Canada's declining share of the US import market may be associated with several factors, including liberalization of the US market for live animals (cattle) that has resulted in some reorganization of the North American beef supply chain. Furthermore, the US country of origin labeling regulation for meat products, imposed between 2009 and 2015 (Bown and Brewster, forthcoming; Greene, 2015), likely increased US meatpackers’ costs and thus contributed to an increase in US import demand over the period (Figure 1). …”