Reprinted with permission from the Western Ag Reporter:
COOL Interview with Leo McDonnell
By Leesa Zalesky
While the U.S. cattle industry and consumers await a World Trade Organization (WTO) arbitration panel ruling on the U.S. country of origin labeling (COOL) program, Leo McDonnell, a rancher in Montana and North Dakota and a long-time COOL proponent, sat down with me for this interview about the status of COOL. The WTO panel decision — about whether or not U.S. COOL caused damage to the Canadian and Mexican cattle industries and, if so, how much those damages amount to — will dictate whether or not Canada and Mexico are permitted to retaliate against the U.S. and at what level. McDonnell has been a cornerstone of the COOL effort in the U.S.; his work on the matter stretches back more than a decade.
Q. Please update readers on the current status of U.S. country of origin labeling (COOL).
LM: The WTO (World Trade Organization) panels, while affirming the right of the U.S. to have COOL, have ruled against the way the Department of Agriculture (USDA) implemented it, saying it discriminates against importers. We are now in the period called “arbitration” where Canada and Mexico are seeking WTO authorization to impose retaliatory tariffs against the U.S. In fact, on September 14 and 15, the degree of tariffs to be allowed by the WTO was argued before a WTO arbitration panel in Geneva, Switzerland. The U.S. was included in this hearing and was permitted to present arguments. Obviously, Canada and Mexico argued for high tariffs, and the U.S. argued for lower tariffs with each presenting their own economic models related to harm. During that process, Canada went out of the norm by trying to substantiate harm to cattle prices in their own country, which is interesting based on the record prices Canada has had while COOL has been in effect.
Q. When do you expect a ruling from the WTO arbitration panel on retaliation?
LM: Originally, a decision was to be issued on November 27th; however, it has now been delayed until December 7.
Q. How do you see the final outcome for COOL unfolding?
LM: There are basically four potential outcomes, in my opinion: 1) The first possibility is that the WTO will grant low-level retaliatory tariffs, and we should be able to keep mandatory COOL. 2) The second possibility is that the WTO will grant high-level retaliatory tariffs, and the U.S. Senate will pass a bill to repeal COOL after which we would revert back to the old standards of where cattle or nearly any beef imported into the U.S. can be labeled as U.S. beef. 3) The third potential outcome is that the U.S. Senate could retain the current law but simply change the language to “voluntary” for pork and beef, which would exempt Canada and Mexico from having to label their product in the U.S. It’s difficult to believe any elected official would support this because it would return us to the deceptive practices of the past. This would be particularly disturbing, especially when there is a solution that allows everyone to win, at least when it comes to truthfulness in labeling. 4) And the fourth possibility is that the WTO grants high-level retaliatory tariffs, and the U.S. “stands its ground” regarding the U.S. being able to govern itself for something as simple as labeling food products as to origin. I don’t believe the last option is at all viable in today’s political environment.
Q. It seems now that the amount of retaliation authorized by the WTO against the U.S. is key to COOL’s future. Canada and Mexico have claimed billions of dollars in damages, and the U.S. has argued that the damages are far, far less. The possible outcomes you’ve described seem to hinge on what the WTO finds the damages actually are, if any. Expound on that, please.
LM: If you look at the reported prices from Canada, from 2009 (after COOL went into effect) until May 2013, there was little or no change in Canadian fed cattle prices as compared to U.S. prices. Actually, there was a $2/cwt difference, which is quite an improvement from the late 1990s when Canadian prices were $7/cwt under U.S. prices. Remember, these are cattle prices that the packers are required to report under the mandatory price reporting program, so it’s unlikely they would report false numbers due to the associated federal laws and subsequent criminal laws that would be broken by doing so.
From May 2013, when USDA issued new COOL rules to satisfy WTO concerns, Canadian fat cattle slipped to $3 under fed cattle. It’s still not clear if the change was due to economic and market conditions in Canada as the Canadian dollar was starting to fall, or if U.S. packers placed the costs of the new rule on just imported cattle rather than across all cattle harvested in the U.S. If the latter scenario is true, it could give cause for discriminatory actions to be brought against those plants. Again, if you use actual reported prices, there is little harm to Canada and Mexico, which is supported by the growing percentage of their production the U.S. has been taking since COOL was implemented. With that said, the U.S. has not fared well in WTO challenges and historically has lost 90% of such cases. It’s interesting that neither Canada, Mexico, nor the importers could prove economic harm in our court system when they filed a lawsuit to have COOL blocked and lost the case.
Q. Some who support mandatory COOL argue that changing the COOL law to a voluntary basis is unacceptable. Explain why you don’t agree with that.
LM: Their argument is simply not correct in my opinion, and here’s why. If we keep the law as it is with the “A” label provision, which is set aside exclusively for U.S. beef, but change the language from mandatory to voluntary, it is still the law, and we will have protected the definition of what is U.S. beef for labeling purposes. Beef from imported cattle or most imported beef that is further processed in the U.S. could not be labeled as a U.S. product under the bill that has been introduced by Senators Stabenow and Hoeven. In other words, we would still maintain the integrity and identity of U.S. beef, and we would protect producers’ opportunity to differentiate our product and market it truthfully and appropriately. If we ever get the beef checkoff updated to the 21st century and make it responsive to consumers’ growing demands to know where their food comes from, U.S. producers would have an already-established and well-funded marketing program to promote their product and support exclusive U.S. beef products. With that in mind, why not take the most important first step by truthfully identifying our product as U.S. beef and clearly defining the eligibility parameters for that label? This will be key to differentiating our product in the global market we find ourselves in today. I urge producers to contact their U.S. Senators to preserve the integrity of the COOL label by supporting the Stabenow-Hoeven bill in the Senate. If Senators have not signed on to the Stabenow-Hoeven bill, they are, in fact, supporting full repeal of COOL and a retreat to a system that easily allows mislabeling for consumers.
Q. Would changing the language in the COOL law from mandatory to voluntary have to be approved by the WTO dispute process?
LM: I don’t believe so, but it would have to be approved by Canada and Mexico, as part of the negotiations to stop potential retaliation tariffs.
Q. What if Canada and Mexico don’t agree to the language change?
LM: Then the U.S. would have to bring a case before the WTO, basically saying that we are in compliance with the WTO’s decision. Not long ago, Mexico brought a case against the U.S. on a voluntary dolphin label, and the U.S. won that challenge, so we have a pretty good precedence. One thing about it, we will find out just how good are neighbors, Canada and Mexico, really are.
Q. You’re very experienced with the politics involved in getting COOL passed by Congress in the first place as you were part of that difficult process. If the U.S. Senate repeals COOL now, is there any possibility of working with Congress to come back later on with voluntary COOL legislation that would incorporate what you’ve described?
LM: If the current COOL law is fully repealed, voluntary or mandatory, it’s highly unlikely in my lifetime that we will see it reintroduced. COOL opponents have very deep pockets and the significant political influence that comes with that. Any new legislation would be compromised worse than the current legislation has been today.
Q. The long battle over COOL has literally pitted U.S. cattle producers and consumers against the special interest groups representing the multinational packers, Canada and Mexico. No one knows that better than you.
LM: What has been most disappointing and discouraging is the fact that the primary contractor for the mandatory beef checkoff program – the National Cattlemen’s Beef Association (NCBA) – has been a leading opponent of U.S. cattle producers’ right to label and differentiate their product from that of foreign nations. That is, on one hand you have the government mandating a collection of the $1.00 per head checkoff to market and promote our product, and on the other hand you have the primary contractor for the mandated checkoff lobbying to keep producers from identifying product for promotion-targeted consumers. In a free market system where accountability counts for something, NCBA would’ve been fired a long time ago as a checkoff contractor. It’s really unfortunate, but that is where we are today. Fortunately, many of the other agriculture commodity checkoff programs have moved to a more modernized checkoff structure under the as the 1996 Commodity Checkoff Act, which is far less regulated and frees checkoff programs to solicit and contract with some pretty exciting and dynamic market specialists rather than the same old industry policy groups.
Q. Boil all the controversy over COOL down and tell readers what aspect of the program you believe drove its opponents to such lengths to see it defeated?
LM: The COOL law deviated from what’s known as “point of transformation,” which is a method used on a lot of imported products. Prior to COOL, if you simply slaughtered imported cattle in the U.S. or further processed imported beef after it came into the U.S. — even just sprinkling seasoning on it — you could call it U.S. beef. However, we all know people don’t eat cows or sit down to a dinner of a quartered beef carcass or a chub of frozen imported lean beef. The previous rules did not specifically address livestock, so we worked with Congress to develop the “born, raised, and slaughtered” language that became part of the COOL law. The importers and packers and their friends didn’t like this because, if U.S. beef was actually promoted in the U.S. like it is in foreign markets where it brings a 20% premium over the product of our next closest competitors Canada and Australia, then they would have to buy it from U.S. cattle producers, which would greatly reduce their procurement basis. Obviously, they want the same opportunity in the U.S. domestic market that they enjoy in the international market where they can claim it is U.S. beef as long as it was harvested or processed in some way in the U.S. They basically want a free market system with no rules, no origin integrity, and no transparency.
Q. What made it so difficult for the WTO panel in their ruling against the U.S.?
LM: The opposition made it very difficult for the WTO to understand how much record-keeping is already in place and required for brand name claims and quality grade claims here in the U.S. These are systems that the packing plants already have in place to identify live cattle for many of the marketing claims in place today like Certified Hereford Beef, Certified Angus Beef, the natural beef programs, etc. There are around 75 branded products alone that use Angus in their brand name, and this claim requires that the cattle be at least 51% black-hided, which — when you look at many of the Angus labels used for products like hamburger — means keeping trimmings and other grounded product segregated. I don’t believe the WTO was allowed to understand the fact that our food system requires that the food industry has to be able to trace back and verify these claims.
Q. Are there other countries with such a defined COOL system?
LM: There are about 60 countries around the globe with some form of COOL. Interestingly, member nations of the European Union are adopting a form of COOL that will even be stricter and broader than what we have in the U.S. Also, Canada is moving to COOL with the support of their Chamber of Commerce, while the U.S. Chamber of Commerce sided with Canada and Mexico in trying to repeal COOL here in the U.S.