[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]






 HEARING TO EXAMINE THE IMPLICATIONS OF POTENTIAL RETALIATORY MEASURES
                   TAKEN AGAINST THE UNITED STATES IN
                       RESPONSE TO MEAT LABELING
                              REQUIREMENTS

=======================================================================

                                HEARING

                               BEFORE THE

           SUBCOMMITTEE ON LIVESTOCK AND FOREIGN AGRICULTURE

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 25, 2015

                               __________

                            Serial No. 114-8


          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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                        COMMITTEE ON AGRICULTURE

                  K. MICHAEL CONAWAY, Texas, Chairman

RANDY NEUGEBAUER, Texas,             COLLIN C. PETERSON, Minnesota, 
    Vice Chairman                    Ranking Minority Member
BOB GOODLATTE, Virginia              DAVID SCOTT, Georgia
FRANK D. LUCAS, Oklahoma             JIM COSTA, California
STEVE KING, Iowa                     TIMOTHY J. WALZ, Minnesota
MIKE ROGERS, Alabama                 MARCIA L. FUDGE, Ohio
GLENN THOMPSON, Pennsylvania         JAMES P. McGOVERN, Massachusetts
BOB GIBBS, Ohio                      SUZAN K. DelBENE, Washington
AUSTIN SCOTT, Georgia                FILEMON VELA, Texas
ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHELLE LUJAN GRISHAM, New Mexico
SCOTT DesJARLAIS, Tennessee          ANN M. KUSTER, New Hampshire
CHRISTOPHER P. GIBSON, New York      RICHARD M. NOLAN, Minnesota
VICKY HARTZLER, Missouri             CHERI BUSTOS, Illinois
DAN BENISHEK, Michigan               SEAN PATRICK MALONEY, New York
JEFF DENHAM, California              ANN KIRKPATRICK, Arizona
DOUG LaMALFA, California             PETE AGUILAR, California
RODNEY DAVIS, Illinois               STACEY E. PLASKETT, Virgin Islands
TED S. YOHO, Florida                 ALMA S. ADAMS, North Carolina
JACKIE WALORSKI, Indiana             GWEN GRAHAM, Florida
RICK W. ALLEN, Georgia               BRAD ASHFORD, Nebraska
MIKE BOST, Illinois
DAVID ROUZER, North Carolina
RALPH LEE ABRAHAM, Louisiana
TOM EMMER, Minnesota
JOHN R. MOOLENAAR, Michigan
DAN NEWHOUSE, Washington

                                 ______

                    Scott C. Graves, Staff Director

                Robert L. Larew, Minority Staff Director

                                 ______

           Subcommittee on Livestock and Foreign Agriculture

                 DAVID ROUZER, North Carolina, Chairman

BOB GOODLATTE, Virginia              JIM COSTA, California, Ranking 
STEVE KING, Iowa                     Minority Member
SCOTT DesJARLAIS, Tennessee          STACEY E. PLASKETT, Virgin Islands
VICKY HARTZLER, Missouri             FILEMON VELA, Texas
TED S. YOHO, Florida                 RICHARD M. NOLAN, Minnesota
TOM EMMER, Minnesota                 CHERI BUSTOS, Illinois
DAN NEWHOUSE, Washington

                                  (ii)
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, opening statement.......................................     5
    Prepared statement...........................................     5
Costa, Hon. Jim, a Representative in Congress from California, 
  opening statement..............................................     3
Goodlatte, Hon. Bob, a Representative in Congress from Virginia, 
  prepared statement.............................................     6
Rouzer, Hon. David, a Representative in Congress from North 
  Carolina, opening statement....................................     1
    Prepared statement...........................................     2

                               Witnesses

Weber, John P., President-Elect, National Pork Producers Council, 
  Dysart, IA.....................................................     7
    Prepared statement...........................................     8
Wenk, Christopher W., Executive Director of International Policy, 
  U.S. Chamber of Commerce, Washington, D.C......................    18
    Prepared statement...........................................    19
Johnson, Roger, President, National Farmers Union, Washington, 
  D.C............................................................    23
    Prepared statement...........................................    24
    Supplementary material.......................................    71
Dempsey, Linda M., Vice President of International Economic 
  Affairs, National Association of Manufacturers, Washington, 
  D.C............................................................    48
    Prepared statement...........................................    49
LaFaille, Tom, Vice President and International Trade Counsel, 
  Wine Institute, Washington, D.C................................    52
    Prepared statement...........................................    52
Smith, Michael T., Special Projects Manager, Harris Ranch 
  Company, Selma, CA.............................................    54
    Prepared statement...........................................    56
Bodor, Alison, Executive Vice President, National Confectioners 
  Association, Washington, D.C...................................    57
    Prepared statement...........................................    58

                           Submitted Material

Blum, Hon. Rod, a Representative in Congress from Iowa, submitted 
  statement......................................................    71
Figel, Brad, Vice President, Public Affairs, Mars, Incorporated, 
  submitted letter...............................................    72
Mosely, Ben, Vice President, Government Affairs, USA Rice 
  Federation, submitted letter...................................    73

 
 HEARING TO EXAMINE THE IMPLICATIONS OF POTENTIAL RETALIATORY MEASURES
                   TAKEN AGAINST THE UNITED STATES IN
                       RESPONSE TO MEAT LABELING
                              REQUIREMENTS

                              ----------                              


                       WEDNESDAY, MARCH 25, 2015

                  House of Representatives,
         Subcommittee on Livestock and Foreign Agriculture,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 9:02 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. David 
Rouzer [Chairman of the Subcommittee] presiding.
    Members present: Representatives Rouzer, Goodlatte, 
DesJarlais, Hartzler, Yoho, Emmer, Newhouse, Conaway (ex 
officio), Costa, Vela, and Nolan.
    Staff present: Caleb Crosswhite, Haley Graves, Jessica 
Carter, John Goldberg, Patricia Straughn, Scott C. Graves, 
Faisal Siddiqui, John Konya, Andy Baker, Mary Knigge, Mike 
Stranz, Rob Larew, and Nicole Scott.

  OPENING STATEMENT OF HON. DAVID ROUZER, A REPRESENTATIVE IN 
                  CONGRESS FROM NORTH CAROLINA

    The Chairman. This hearing of the Subcommittee on Livestock 
and Foreign Agriculture to examine the implications of 
potential regulatory measures taken against the United States 
in response to meat labeling requirements, will come to order.
    Good morning. I would like to start out by quickly thanking 
Mr. Bryan Blinson for attending today's hearing. Mr. Blinson 
serves as the Executive Director for the North Carolina 
Cattlemen's Association, and as all of you all know, I 
represent southeastern North Carolina. And, Mr. Blinson, great 
to have you here with us this morning.
    As we have all observed, the United States is fortunate to 
have the safest, highest quality, most abundant, diverse, and 
affordable food supply in the world. Like most Members who 
represent rural districts, I understand the critical importance 
of trade, both for our domestic prosperity as well as the moral 
obligation to support global food security.
    While my district has not always benefited from the trade 
agreements the United States has entered into, my constituents 
and I understand the potential benefits that can be derived 
from fair trade agreements. And I emphasize the concept of 
fairness because I have been critical of agreements that open 
our domestic markets to products produced in my district, while 
not necessarily gaining international market access for those 
same products. When countries, or blocks of countries like the 
European Union, impose non-tariff trade barriers on U.S. 
agricultural products, and encourage other nations to adopt 
similarly protectionist policies, one can question whether such 
agreements are in fact fair. I also understand that to 
criticize other nations for imposing protectionist barriers to 
our products means that we must likewise be critical of our own 
policies that do the same.
    In 2002, and I happened to be on the staff of Senator Jesse 
Helms at that point in time when we were working on the 2002 
Farm Bill, the Congress of the United States adopted a 
discriminatory country-of-origin labeling requirement for meat 
products. As a staff member for Senator Helms during that 
conference negotiation, I can attest to the fact that those 
folks who opposed this mandate warned that the policy might not 
comply with our trade agreements, and would likely not 
withstand a challenge in the WTO. Those concerns have proven to 
be well-founded considering the United States Country-of-Origin 
Labeling Program for beef and pork was almost immediately 
challenged by Canada and Mexico, and has lost at every level in 
the WTO thus far.
    Now, in the next few weeks, we expect to hear the results 
of our final appeal, and if we lose there, we will likely face 
substantial retaliatory sanctions. While we do not know for 
certain what the WTO appellate body will decide, observers 
believe that there is little likelihood that the appellate body 
will reverse their earlier decision.
    This Subcommittee has a responsibility to review the 
potential impacts of retaliation by Canada and Mexico if those 
countries are authorized to do so. As such, I have asked 
members of the business community to testify today on what that 
retaliation may look like and what this will mean for our 
economy.
    Secretary Vilsack has stated publicly that if the United 
States loses the appeal, country-of-origin labeling cannot be 
fixed administratively. The law will need to be changed. As a 
Subcommittee, we need to understand the ramifications of 
inaction and be prepared to move quickly after the WTO decision 
is announced to avoid retaliation.
    [The prepared statement of Mr. Rouzer follows:]

 Prepared Statement of Hon. David Rouzer, a Representative in Congress 
                          from North Carolina
    Good morning.
    I would like to start by quickly thanking Mr. Bryan Blinson for 
attending today's hearing. Mr. Blinson serves as the Executive Director 
for the North Carolina Cattlemen's Association. We are happy to have 
him join us today and appreciate all his hard work on behalf of North 
Carolina's cattlemen.
    As we have all observed, the United States is fortunate to have the 
safest, highest quality, most abundant, diverse, and affordable food 
supply in the world. Like most Members who represent rural districts, I 
understand the critical importance of trade, both for our domestic 
prosperity as well as the moral obligation to support global food 
security.
    While my district has not always benefited from the trade 
agreements the United States has entered into, my constituents and I 
understand the potential benefits that can be derived from fair trade 
agreements. I emphasize the concept of ``fairness'' because I have been 
critical of agreements that open our domestic markets to products 
produced in my district while not necessarily gaining international 
market access for these same products. When countries--or blocks of 
countries like the European Union--impose non-tariff trade barriers on 
U.S. agricultural products, and encourage other nations to adopt 
similarly protectionist policies, one can question whether such 
agreements are in fact fair.
    I also understand that to criticize other nations for imposing 
protectionist barriers to our products means that we must likewise be 
critical of our own policies that do the same.
    In 2002, the Congress of the United States adopted a discriminatory 
country-of-origin labeling requirement for meat products. As a staff 
member for a Senate Agriculture Committee Member during the 2002 Farm 
Bill conference, I can attest to the fact that those folks who opposed 
this mandate warned that the policy might not comply with our trade 
commitments and would likely not withstand a challenge in the WTO.
    Those concerns have proven to be well-founded considering the 
United States COOL program for beef and pork was almost immediately 
challenged by Canada and Mexico, and has lost at every level in the WTO 
thus far.
    In the next few weeks, we expect to hear the results of our final 
appeal and if we lose there, we will likely face substantial 
retaliatory sanctions.
    While we do not know for certain what the WTO appellate body will 
decide, observers believe that there is little likelihood that the 
appellate body will reverse the earlier decision.
    This Subcommittee has a responsibility to review the potential 
impacts of retaliation by Canada and Mexico if those countries are 
authorized to do so. As such, I have asked members of the business 
community to testify today on what that retaliation may look like and 
what this will mean for our economy.
    Secretary Vilsack has stated publicly that if the United States 
loses the appeal, country-of-origin labeling cannot be fixed 
administratively. The law will need to be changed. As a Subcommittee, 
we need to understand the ramifications of inaction and be prepared to 
move quickly after the WTO decision is announced to avoid retaliation.
    With that, I want to thank our witnesses that are here today and 
recognize the Ranking Member, Mr. Costa of California, for his opening 
remarks.

    The Chairman. With that, I want to thank our witnesses that 
are here today and recognize the Ranking Member, Mr. Costa of 
California for his opening remarks. Mr. Costa.

   OPENING STATEMENT OF HON. JIM COSTA, A REPRESENTATIVE IN 
                    CONGRESS FROM CALIFORNIA

    Mr. Costa. Thank you very much, Chairman Rouzer, and 
Members of the Subcommittee, and our Chairman who is here with 
us this morning. We do have a group of distinguished 
individuals on our panel, and I am pleased that they are going 
to be able to give an opportunity to let us get a better sense 
of the challenges we face when the World Trade Organization 
will rule on the appeal that has been made.
    I think many of us who have been around for a while are 
familiar with the Mandatory Country-of-Origin Labeling rules, 
whether you refer to it as MCOOL or COOL, it is all the same. 
The fact is is that the debate has been going on for decades as 
to whether Country-of-Origin Labeling is an experiment that can 
or cannot work. Having worked with various elements of both the 
pork and the beef and the poultry, and other industries that 
have been impacted, the challenges facing Mandatory Country-of-
Origin Labeling it was destined not to work for a number of 
factors. And while the supporters have argued the opposite, we 
have to look at the facts. I think we have seen increase in 
production costs, we have seen impacts to cost to consumers 
that are factoring in meat purchasing.
    What I would like to hear today from our witnesses is how 
we move beyond the eventual ruling that we believe will be 
forthcoming. One thing is for certain, the World Trade 
Organization, the WTO, is set to release its decision on the 
United States' appeal in conjunction with the ruling, and the 
countries of Canada and Mexico are posed to react. To that end, 
we need to talk about the potential reaction, and as the 
Chairman indicated here of the Subcommittee, the fact that 
Secretary Vilsack has indicated that no Administrative action, 
if we have an adverse ruling, as many of us expect that we will 
have, is going to resolve the issue. And, therefore, we will 
have to move with legislation.
    It is incumbent upon this Subcommittee and the full 
Committee then to take action. The challenges to our trading 
partners are significant. And for those of us who believe that 
trade is critical for our country's economic well-being, and 
especially for our agricultural economy throughout the 50 
states, we can look at some harsh retaliation efforts that will 
take place if, in fact, what many of us conclude will occur in 
the next several months. As a matter of fact, and I suspect 
some of the witnesses will testify to this point, the Canadian 
Government has already published a list of commodities that 
will be subject to retaliatory measures. Estimates say that the 
impact could well be over $1 billion in California alone. We 
annually export a great deal. In California, our agricultural 
exports last year totaled over $18.5 billion, so this is 
significant.
    I remember very clearly, only a few years ago, when we had 
a similar issue on trade with the Mexican Government on the 
trucking dispute, devastating effects, as we saw the Mexican 
Government take action on a host of issues involving 
agricultural products that we import--or export, excuse me, to 
Mexico. It was estimated that those retaliatory tariffs cost 
U.S. agriculture over $2.6 billion. Of course, it was Mexico's 
right to take that action. And it also impacted jobs, and when 
we have a recovering economy, jobs are critical. No one wants 
that, I don't believe. No one wants to see any retaliatory 
efforts made by Canada or Mexico. And I know that--or I sense, 
in talking with officials of those two governments, that they 
don't want to impose these proposed retaliation tariffs.
    So I am pleased that this hearing is taking place this 
morning. It gives us an opportunity to establish a record as to 
the potential impacts. And I would also like the witnesses to 
suggest how you think we might want to go about with 
legislation in the event that action takes place, as many of us 
believe that it will. However, it is important that once this 
process is complete, that the Congress resolve this issue.
    In closing, Mr. Chairman, I have heard from the livestock 
industry, the pork producers, as well as people from the wine 
and tree and other manufacturing processing industries 
throughout California who are very concerned about the 
potential retaliatory effects that could be taken by Canada and 
Mexico. It is time we get to work.
    And again, thank you, Mr. Chairman, for calling this 
hearing of the Subcommittee. Thank you, Mr. Chairman, of the 
full Committee, because you and I talked about this issue over 
the last several years, and I know it concerns you as well. So 
I look forward to listening to the testimony.
    The Chairman. Thank you, Mr. Costa.
    I would now like to recognize the Chairman of the full 
Committee, Chairman Conaway.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE 
                     IN CONGRESS FROM TEXAS

    Mr. Conaway. Thanks, Chairman Rouzer, and, David, thank you 
for those kind comments.
    I just want to do a couple of things. One, congratulate you 
on your chairmanship, and you are chairing your very first 
official hearing. You bring great talent and a wealth of 
background and experiences to the tasks, and I have great 
confidence in you and Mr. Costa that you will get this done.
    I also want to thank our witnesses for coming here today to 
help us understand some of the retaliatory impacts that may 
occur if we fail to act, and in fact, the WTO rules against the 
appeal that is out there. This debate surrounding Mandatory 
Country-of-Origin Labeling precedes my term in Congress, 
although as a freshman, one of my first Floor speeches related 
to agriculture was related to this topic. In spite of the 
reservations that cattlemen and pork producers expressed at the 
time this was being considered that it wouldn't work and that 
we would suffer consequences as a result of it. Congress 
decided to go ahead and try to implement it, at great costs, 
and in my view, unquantifiable benefits as a result of this 
process. In addition to that, the impact has been that our 
North American livestock market has been fractured 
unnecessarily, and again for no good reason.
    So as we examine the impacts of retaliation, if we lose the 
appeal, I hope that the Members will also recognize the failure 
of this experiment, and work together to avoid the economic 
damages that will be felt by American businesses both inside 
and outside agriculture.
    So with that, Mr. Chairman, good luck on your role as 
Chairman of this Subcommittee, and I look forward to your 
leadership. I yield back.
    [The prepared statement of Mr. Conaway follows:]

  Prepared Statement of Hon. K. Michael Conaway, a Representative in 
                          Congress from Texas
    Thank you, Chairman Rouzer and Ranking Member Costa, for holding 
this important hearing.
    Thank you, also to all of our witnesses for taking your time to be 
here today and helping us understand the consequences we face if we 
fail to act and the WTO appellate body ultimately finds against the 
United States as the previous panels have.
    The debate surrounding mandatory country-of-origin labeling for 
meat precedes my being a Member. In fact, as a freshman Member of this 
House, one of my very first Floor speeches related to agriculture was 
on this very topic.
    Considering the discussions that took place prior to the initial 
passage of COOL in 2002, mainstream cattlemen and pork producers have 
raised concerns that this policy would likely not withstand legal 
challenges in the WTO. Yet we proceeded to implement a program with 
enormous costs and no quantifiable benefits. Our North American 
livestock market has been unnecessarily fractured by this policy, but I 
believe that the damage can be repaired.
    As we examine the impacts of retaliation if we lose this appeal, I 
hope that all Members will recognize the failure of this experiment and 
work together to avoid the economic damages that could be felt by 
American businesses both inside and outside of agriculture.
    Once again, I thank Chairman Rouzer for holding this hearing and 
yield back.

    The Chairman. Thank you, Mr. Chairman. I appreciate your 
confidence and look forward to working in this role as well.
    The chair would request that other Members submit their 
opening statements for the record so the witnesses may begin 
their testimony, and to ensure that there is ample time for 
questions.
    [The prepared statement of Mr. Goodlatte follows:]

Prepared Statement of Hon. Bob Goodlatte, a Representative in Congress 
                             from Virginia
    Chairman Rouzer and Ranking Member Costa, thank you for holding 
this critical hearing to examine the implications of potential 
retaliatory measures to be taken against the United States in response 
to meat labeling requirements under the mandatory country-of-origin 
labeling requirement. As you know, our nation now stands at a cross 
roads as we face the daunting impacts of international trade 
retaliation as the World Trade Organization's (WTO) Appellate Body is 
scheduled to rule shortly on whether the U.S. mandatory Country-of-
Origin (COOL) rule violates World Trade Organization (WTO) obligations.
    The COOL provisions, as originally written, have raised many 
concerns among producers, processors, suppliers and retailers. In 
response, I have long called for a voluntary program that is market 
driven, recognizes existing labeling programs, minimizes record-
keeping, allows flexibility, trade compliant and is cost-effective.
    As you know, in 2002, Congress enacted mandatory country-of-origin 
labeling (COOL) provisions requiring retailers of certain meat products 
to inform consumers of a product's country-of-origin. In June of 2003, 
when I chaired the House Committee on Agriculture one of the first 
hearings on COOL portended the serious widespread impacts, as I was 
able to note at that time, ``This hearing reinforces my belief that we 
are moving forward with an idea that will have a negative impact on our 
producers, and little or no benefit for those it was intended to 
help.''
    In 2005, I was led to introduce voluntary country-of-origin 
labeling (VCOOL) legislation, which would have established a voluntary 
program to allow producers to work with processors and retailers to 
provide labeling information in the marketplace in such a way that 
informs consumers and benefits producers. As I noted 10 years ago, 
``this approach benefits consumers and producers and is preferable to a 
mandatory program that is more likely to hurt the people it was 
intended to help.''
    It has now been nearly 13 years since enactment of the 2002 Farm 
Bill and yet there is still a lack of consensus about how the COOL 
provisions could be implemented not only in a cost effective manner but 
in a manner compliant with our trade obligations. Even the U.S. 
Department of Agriculture estimated implementation costs stand at 
roughly $2.6 billion, with each affected commodity producer paying 
$370, intermediary firms paying $48, 219 each, and retailers paying 
$254,685 a piece.
    In November 2014, Secretary of Agriculture Vilsack said that USDA 
analysis shows that there is no regulatory fix that will allow COOL 
regulations to be consistent with the COOL law and also satisfy the WTO 
rulings. The WTO's Appellate Body decision anticipated this spring will 
once again rule against the U.S. due to discrimination against imported 
livestock. Canada and Mexico have clearly stated that they will request 
WTO authorization to suspend concessions with the United States, 
through retaliation, in the form of raising tariffs on U.S. products 
that they import.
    My home, the Commonwealth of Virginia could face tariffs on $331 
million worth of exports, including targeted retaliation already 
proposed by Canada impacting 22 key state exports such as bread and 
pastries $17 million, fresh chilled poultry parts $6 million, prepared 
cocoa and chocolate products of $4 million, impacting my Congressional 
district, and as importantly restricting worldwide global trading 
markets.
    The stated intent of those who advocate a mandatory COOL scheme has 
been to benefit producers, which is a worthy goal. Unfortunately, 
United States' continued failure to bring the Country-of-Origin 
Labeling (COOL) rules into compliance with its WTO obligations is 
threatening the U.S. economy and exports to our two largest trading 
partners. With the threat of retaliation looming for wide range of our 
nation's agricultural as well as manufactured products, Congress must 
move quickly to address these WTO-inconsistent provisions--to preserve 
both our standing in world international trade markets and sustain 
economic capacity for our nation.

    The Chairman. The chair would like to remind Members that 
they will be recognized for questioning in order of seniority 
for Members who were present at the start of the hearing, after 
that, Members will be recognized in order of their arrival. I 
appreciate Members' understanding.
    The witnesses are asked to limit their oral presentation to 
4 minutes. All written statements will be included in the 
record.
    I would like to welcome our witnesses to the table. First, 
we have Mr. John Weber, President-Elect, National Pork 
Producers Council; Mr. Christopher Wenk, Executive Director of 
International Policy, U.S. Chamber of Commerce; Mr. Roger 
Johnson, President, National Farmers Union; Ms. Linda Dempsey, 
Vice President of International Economic Affairs, National 
Association of Manufacturers; Mr. Alison--pardon me, Mr. Tom 
LaFaille, Vice President and International Trade Counsel of the 
Wine Institute. I almost skipped you there. My apologies. Ms. 
Alison Bodor, Executive Vice President, National Confectioners 
Association; and Mr. Michael Smith, Special Projects Manager, 
Harris Ranch Company, Selma, California.
    Mr. Weber, please begin when you are ready.

  STATEMENT OF JOHN P. WEBER, PRESIDENT-ELECT, NATIONAL PORK 
                 PRODUCERS COUNCIL, DYSART, IA

    Mr. Weber. Mr. Chairman, I appreciate the opportunity to 
represent NPPC at this hearing today.
    Exports add significantly to the bottom line of each U.S. 
pork producer. U.S. exports of pork and pork products totaled 
2.18 million metric tons in 2014, representing over \1/4\ of 
our total production. These exports add more than $63 to the 
value of each and every hog marketed. Mexico and Canada are our 
second and third largest foreign markets for pork, with U.S. 
exports totaling $1.55 billion and $904 million respectively.
    Our exports to Canada since the implementation of the U.S.-
Canada Free Trade Agreement in 1989 have grown over 20 times. 
Our pork exports to Mexico since NAFTA in 1994 have grown by 
over 12 times. We cannot afford to have these exports 
disrupted, nor can workers in allied sectors.
    The U.S. pork industry supports an estimated 550,000 
domestic jobs, mostly in rural areas, and about 110,000 of 
these are the result of pork exports. The loss of the Mexican 
and Canadian markets, valued at $2.4 billion, could, therefore, 
cost over 16,000 non-farm jobs. But these job losses are only 
those that relate to pork exports. According to a CRS report, 
it has been estimated that retaliation by both Mexico and 
Canada could target between $1 billion and $2 billion in 
exports from the United States. Other estimates suggest it 
could exceed $2 billion, and Canada and Mexico will likely seek 
an even higher number; perhaps as much as a combined total of 
$4 billion. If it comes to this, a WTO panel will ultimately 
decide the actual number. But any of these figures could result 
in a devastating blow to tens of thousands of people in our 
sector and others.
    Canada has published a list of over three dozen categories 
of products that could be hit. Mexico has not yet made public 
its list, but our experience with retaliation by Mexico 
resulting from its successful challenge to the U.S. ban on 
Mexican trucking suggests that its list will be at least as 
long, and likely quite similar to the trucking retaliation. 
That retaliation totaled $2.4 billion.
    We understand that Mexican importers are already looking 
for alternative sources of supply for products on the list. 
There is no way we can compete with products from other 
countries when our products are subject to steep retaliatory 
duties.
    Regrettably for us, pork is on Canada's target list and 
will likely be on Mexico's. Because COOL involves agricultural 
products, retaliation is inevitably going to fall heavily on 
U.S. agriculture. If the situation were reversed, the United 
States would retaliate against imported products in the same 
sector. When the European Union refused to lift its illegal ban 
on imports of U.S. beef in the hormone dispute, we retaliated 
against European food products. But that dispute, involving 
trade of $93 million, pales in comparison with the Country-of-
Origin Labeling case in terms of the scope of the retaliation 
involved.
    Because the damage to U.S. exports will be multiplied 
across our economy, the economic effect will greatly exceed 
whatever retaliation is ultimately authorized by WTO, and will 
hurt many Americans that had nothing to do with implementing 
COOL. Not only will innocent bystanders be harmed, the economy 
as a whole will suffer. Professor Dermot Hayes of Iowa State 
University calculates that the effect of $2 billion in 
retaliation would be 17,000 lost U.S. jobs. Retaliation of $4 
billion would double this figure. Estimates of state-by-state 
job losses are contained in Attachment 1 of the NPPC written 
statement.
    We expect the WTO to once again rule against the United 
States in mid-May. Congress must be prepared to repeal the 
offending parts of the statute to bring the U.S. into 
compliance with WTO rules. Congress should not allow 
retaliation against pork producers and other sectors of the 
U.S. economy.
    Thank you.
    [The prepared statement of Mr. Weber follows:]

  Prepared Statement of John P. Weber, President-Elect, National Pork 
                     Producers Council, Dysart, IA
Introduction
    The National Pork Producers Council (NPPC) is an association of 43 
state pork producer organizations that serves as the global voice for 
the nation's pork producers. The U.S. pork industry represents a 
significant value-added activity in the agriculture economy and the 
overall U.S. economy. Nationwide, more than 68,000 pork producers 
marketed more than 111 million hogs in 2013, and those animals provided 
total gross receipts of more than $20 billion. Overall, an estimated 
$21.8 billion of personal income and $35 billion of gross national 
product are supported by the U.S. hog industry. Economists Daniel Otto, 
Lee Schulz and Mark Imerman at Iowa State University estimate that the 
U.S. pork industry is directly responsible for the creation of nearly 
35,000 full-time equivalent pork producing jobs and generates about 
128,000 jobs in the rest of agriculture. It is responsible for 
approximately 111,000 jobs in the manufacturing sector, mostly in the 
packing industry, and 65,000 jobs in professional services such as 
veterinarians, real estate agents and bankers. All told, the U.S. pork 
industry is responsible for more than 550,000 mostly rural jobs in the 
United States.
The U.S. Pork Industry is Dependent on Exports
    Exports add significantly to the bottom line of each U.S. pork 
producer. U.S. exports of pork and pork products totaled 2.18 million 
metric tons in 2014, representing over \1/4\ of U.S. production. These 
exports add more than $63 to the value of each hog marketed.
    Mexico and Canada are the second and third largest foreign markets, 
respectively, for U.S. pork, with U.S. exports totaling $1.55 billion 
and $904 million, respectively. U.S. exports to Canada since the 
implementation of the U.S.-Canada Free Trade Agreement in 1989 have 
grown by over 20 times, while pork exports to Mexico since NAFTA in 
1994 have grown by over 12 times.
    The U.S. pork industry cannot afford to have these exports 
disrupted and nor can workers in allied sectors. The U.S. pork industry 
supports an estimated 550,000 domestic jobs, most in rural areas, and 
about 110,000 of these are the result of pork exports. The loss of the 
Mexican and Canadian markets valued at $2.4 billion could, therefore, 
cost over 16,000 non-farm jobs. But these job losses are only those 
that relate to pork exports. According to a CRS report,\1\ it has been 
estimated that retaliation by both Mexico and Canada could target 
between $1 billion and $2 billion in exports from the U.S. Other 
estimates suggest it could exceed $2 billion, and Canada and Mexico 
will likely seek an even higher number, perhaps as much as a combined 
total of $4 billion. If it comes to this, a WTO panel will ultimately 
decide the actual number.
---------------------------------------------------------------------------
    \1\ http://fas.org/sgp/crs/misc/RS22955.pdf..
---------------------------------------------------------------------------
    But any of these figures could result in a devastating blow to tens 
of thousands of people in the U.S. pork sector and others. Canada has 
published a list \2\ of over three dozen categories of products that 
could be hit. Mexico has not yet made public its list, but U.S. 
experience with retaliation by Mexico, resulting from its successful 
challenge to the U.S. ban on Mexican trucking, suggests that its list 
will be at least as long and likely quite similar to the trucking 
retaliation list. That retaliation totaled $2.4 billion. It has been 
rumored that Mexican importers are already looking for alternative 
sources of supply for products on the list. There is no way the United 
States can compete with products from other countries when U.S. 
products are subject to steep retaliatory duties.
---------------------------------------------------------------------------
    \2\ http://www.international.gc.ca/media_commerce/comm/news-
communiques/2013/06/07a.aspx?lang=eng
---------------------------------------------------------------------------
    Regrettably for the U.S. pork industry, pork is on Canada's target 
list and will likely be on Mexico's. Because COOL involves agricultural 
products, retaliation is inevitably going to fall heavily on U.S. 
agriculture. If the situation were reversed, the United States would 
retaliate against imported products in the same sector. When the 
European Union refused to lift its illegal ban on imports of U.S. beef 
in the hormone dispute, the United States retaliated against European 
food products. But that dispute, involving trade of $93 million,\3\ 
pales in comparison with the COOL case in terms of the scope of 
retaliation involved.
---------------------------------------------------------------------------
    \3\ Congressional Research Service Report R40449.
---------------------------------------------------------------------------
    Because the damage to U.S. exports will be multiplied across the 
economy, the economic effect will greatly exceed whatever retaliation 
is ultimately authorized by the WTO and will hurt many Americans who 
had nothing to do with implementing the COOL law. Not only will 
innocent bystanders be harmed, the economy as a whole will suffer. 
Professor Dermot Hayes of Iowa State University calculates that the 
effect of $2 billion in retaliation would be 17,000 lost U.S. jobs. 
Retaliation of $4 billion would double this figure. Estimates of state-
by-state job losses are contained in Attachment 1.
    The Commerce Department recently reported \4\ that nearly 30 
percent of gross domestic product (GDP) growth over the last 5 years 
has been the result of export growth. Moreover, two of the three export 
markets that contributed the most to this export growth are Mexico and 
Canada. Retaliation by them would needlessly put a brake on an element 
of the U.S. economy that has been performing well.
---------------------------------------------------------------------------
    \4\  ``The Role of Exports in the United States Economy,'' The U.S. 
Department of Commerce, May 13, 2014.
---------------------------------------------------------------------------
The Cost of Retaliation is Not Worth the Insignificant Benefits from 
        COOL
    So what, one may ask, does our nation gain from COOL as it is 
presently constituted?

   COOL imparts no useful health or safety information to 
        consumers. No health or safety rationale for COOL has ever been 
        advanced by USDA, because, quite simply, there is none. 
        Imported meat products are already subject to the same strict 
        sanitary requirements applied to domestically produced meat.

   COOL imposes additional costs on processors that are passed 
        onto consumers. Moreover, the need for the Department of 
        Agriculture to ensure compliance means COOL adds costs to the 
        taxpayer. USDA's analysis of its final rule estimated first-
        year implementation costs to be approximately $2.6 billion for 
        those affected. Of the total, each commodity producer would 
        bear an average estimated cost of $370, intermediary firms 
        (such as wholesalers or processors) $48,219 each and retailers 
        $254,685 each.\5\ When USDA announced the modification of the 
        COOL rule in May 2013 in a vain effort to comply with the 
        adverse WTO ruling, it said that that change in the regulation 
        alone would cost an estimated $123.3 million, with a range of 
        $53.1 million to $192.1 million, and that 33,350 establishments 
        owned by 7,181 firms will be either directly or indirectly 
        affected by this rule. Of these establishments/firms, USDA 
        estimated that 6,849 qualified as small businesses.\6\
---------------------------------------------------------------------------
    \5\ Congressional Research Service RS22955.
    \6\ http://www.gpo.gov/fdsys/pkg/FR-2013-05-24/pdf/2013-12366.pdf

   COOL has caused trade tensions with two of the largest 
        trading partners of the United States, and now it appears that 
        retaliation by them will result in significant additional costs 
---------------------------------------------------------------------------
        to the U.S. economy in lost exports and jobs.

    Because the WTO does not and could never have an enforcement arm, 
sanctioned retaliation tailored to bring rights and obligations back 
into balance is the only permissible recourse to address trade measures 
that have been judged not to comply with internationally accepted rules 
if nations do not act to bring those measures into compliance.
    The United States has been the global leader in the creation of 
both a rules-based global trading system and a dispute settlement 
process within that system that is fair and balanced. The rules COOL 
has been found to violate are those the United States helped write and 
those the United States demanded other countries abide by in their 
treatment of U.S. exports. The United States is quick to applaud when 
panels find in its favor and quick to insist that U.S. trading partners 
bring offending measures into conformity with those rules.
    The United States should be equally quick to do so itself.
Background
    COOL became effective on Sept. 30, 2008, under an interim final 
rule published by USDA. USDA published a final rule with several 
changes to the interim final rule in January 2009, and the final rule 
took effect March 16 of that year.
    The following table provides an overview of the rule and its 
complexity with respect to determining the appropriate label at the 
retail level.

--------------------------------------------------------------------------------------------------------------------------------------------------------
   Muscle Cuts & Ground Meat
           Categories               COOL Statutory Definition                 AMS Final Rule (January 2009)                 COOL Label at Retail Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
United States Country-of-Origin  ``beef [or] . . . pork . . .    For beef and pork, means:
 [Category A or Label A]          derived from an animal that
                                  was . . . exclusively born,
                                  raised, and slaughtered in
                                  the United States''
                                                                                                                          Product of the US(A).
--------------------------------------------------------------------------------------------------------------------------------------------------------
Multiple Countries of Origin     ``beef [or] . . . pork . . .
 [Category B or Label B]          derived from an animal that
                                  is--
                                                                 For muscle cuts of beef and pork ``derived from animals  Product of the U.S., Country X
                                                                 For muscle cuts of beef and pork ``derived from animals
                                                                  that are born in Country X or Country Y, raised and
                                                                  slaughtered in the United States, that are commingled
                                                                  during a production day with muscle cut[s of beef and
                                                                  pork] derived from animals that are imported into the
                                                                  United States for immediate slaughter . . ., the
                                                                  origin may be designated as Product of the United
                                                                  States, Country X, and (as applicable) Country Y.''
                                                                 ``In each case, the countries may be listed in any
                                                                  order. In addition, the origin declaration may include
                                                                  more specific information related to production steps
                                                                  provided records to substantiate the claims are
                                                                  maintained and the claim is consistent with other
                                                                  applicable Federal legal requirements.''
--------------------------------------------------------------------------------------------------------------------------------------------------------
Imported for Immediate           ``beef [or] . . . pork . . .    ``If an animal was imported into the United States for   Product of Country X, U.S.
 Slaughter [Category C or Label   derived from an animal that     immediate slaughter [defined as `consignment directly
 C]                               is imported into the United     from the port of entry to a recognized slaughtering
                                  States for immediate            establishment and slaughtered within 2 weeks from the
                                  slaughter''                     date of entry'], the origin of the resulting [beef and
                                                                  pork] derived from that animal shall be designated as
                                                                  Product of Country X and the United States.''
--------------------------------------------------------------------------------------------------------------------------------------------------------
Foreign Country-of-Origin        ``beef [or] . . . pork . . .    ``Imported [beef and pork] for which origin has already  Product of X.
 [Category D or Label D]          derived from an animal . . .    been established as defined by this law (e.g., born,
                                  not born, raised, or            raised, and slaughtered or produced) and for which no
                                  slaughtered in the United       production steps have occurred in the United States,
                                  States''                        shall retain their origin, as declared to U.S. Customs
                                                                  and Border Protection at the time the product entered
                                                                  the United States, through retail sale.''
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ground Beef or Pork              ``notice . . . for ground       ``The declaration for ground beef, ground pork . . .     Product of U.S., Country X,
                                  beef, ground pork . . . shall   shall list all countries of origin contained therein     [and as applicable] Country
                                  include a list of all [or] .    or that may be reasonably contained therein. In          Y, Country Z.
                                  . . all reasonably possible     determining what is considered reasonable, when a raw
                                  countries of origin of such     material from a specific origin is not in a
                                  ground beef, ground pork, . .   processor's inventory for more than 60 days, that
                                  .''                             country shall no longer be included as a possible
                                                                  country-of-origin.''
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Research Service Report RS22955.

    Canada and Mexico initiated separate dispute settlement cases in 
December 2008. The two cases were combined in May 2010 because of the 
similarity of the claims. See Attachment 2 for a full timeline of 
actions in this case. A WTO summary of key findings by various WTO 
bodies can be found in Attachment 3 and at the WTO website: https://
www.wto.org/english/tratope/dispu_e/cases_e/ds384_e.htm.
    In short, Canada and Mexico both stated that they were not 
challenging mandatory country-of-origin labeling as such; they were 
arguing that COOL requirements, as implemented, act as a protectionist 
trade barrier that distorts competition between imported and domestic 
meat products. A major complaint involved the reservation of the 
``Product of the United States'' label for animals that were born, 
raised and slaughtered in the U.S. They argued that this unfairly 
denied the use of that label to products from animals that were 
exported to the U.S. at a young age and subsequently raised and 
slaughtered in the United States. Mexico pointed out that 70 percent of 
the weight and value of the feeder cattle it exports to the U.S. is 
added within U.S. territory.
    In July 2012, the WTO ruled against the United States, with the WTO 
Appellate Body finding that COOL ``does not impose labeling 
requirements for meat that provide consumers with origin information 
commensurate with the type of origin information that upstream 
livestock producers and processors are required to maintain and 
transmit.''
    The United States then attempted to come into compliance with the 
WTO ruling by amending the regulation and requiring the industry to 
provide more information. A table comparing the two is provided here:

------------------------------------------------------------------------
        Category                2009 Label              2013 Label
------------------------------------------------------------------------
A (U.S.)                  Product of the United   Born, Raised, and
                           States                  Slaughtered in the
                                                   United States
B (Multiple)              Product of the United   Born in X, Raised and
                           States and X; or,       Slaughtered in the
                           Product of the United   United States; or,
                           States, X, and Y        Born in X, Raised in
                                                   Y, Slaughtered in the
                                                   United States.
C (Imm. Slaughter)        Product of X and the    Born and Raised in X,
                           United States           Slaughtered in the
                                                   United States
D (Foreign)               Product of X            Product of X
Commingled (A) + (B)      Product of the United   Prohibited
                           States and X
Commingled (B) + (C)      Product of the United   Prohibited
                           States and X; or
                           Product of X and the
                           United States
------------------------------------------------------------------------

    In August 2013, Canada and Mexico formally initiated WTO compliance 
proceedings to challenge USDA's amended COOL rule. Canada and Mexico 
stated that, like its predecessor, the new regulation discriminates 
against meat products derived from livestock from their respective 
countries and, therefore, violates WTO rules.
    On Oct. 20, 2014, a WTO compliance panel agreed with most the 
Canadian and Mexican claims, finding that the amended COOL rule 
``accords imported [Canadian and Mexican] livestock treatment less 
favorable than that accorded to like domestic livestock.'' The U.S. 
subsequently appealed that ruling, and the WTO Appellate Body is 
expected to rule on that appeal in May.
    The WTO is likely once again to find that COOL violates WTO 
principles. Once that happens, Mexico and Canada will request the WTO 
to allow them to place retaliatory tariffs on U.S. pork and many other 
U.S. products. Absent Congressional or regulatory action to eliminate 
offending elements of the COOL statue, Canada and Mexico can be 
expected to retaliate against U.S. exports during the second part of 
this year.
U.S. Agriculture has Unfortunate Experience with Retaliation
    On March 16, 2009, Mexico announced it would retaliate against the 
United States for the cancellation of the Cross-Border Trucking 
Demonstration Program. This action was taken as a result of a ruling by 
a neutral NAFTA dispute settlement panel, which found that the U.S. 
trucking restrictions were in breach of its NAFTA obligations. The 
Mexican announcement raised tariffs on 89 different U.S. products, 
ranging from many agriculture goods (pork, apples, soups and sauces, 
cheese, pears, pet food, potatoes, nuts, almonds, strawberries, onions, 
pistachios, peanuts, wine and various other fruits and vegetables) to 
such items as jewelry. These totaled $2.4 billion (2008 value) in U.S. 
exports. Perhaps no U.S. sector was as hard hit as the potato industry, 
which saw immediate losses in market share to Canada and prices to 
growers plummet. Potato producers learned the hard way that once a 
market is lost to competitors, it is hard and takes time to recapture. 
Sometimes a market is lost for good.
    Mexico later decided to revise the list of affected products on 
Aug. 18, 2010, and raised the number of products to 99 valued at $2.03 
billion (2009 value), with tariffs ranging from 5-25 percent. Sixteen 
products were dropped from the original list and 26 products were added 
to the revised list. This ``carrousel'' form of retaliation added 
additional uncertainty to markets and further harm to affected U.S. 
producers.
    On July 6, 2011, the U.S. and Mexico signed a formal agreement, 
allowing Mexican trucks to operate in the U.S. as part of a pilot 
program, which resulted in the Mexican government phasing out the 
retaliatory tariffs.
Conclusion
    The U.S. pork industry expects the WTO to once again rule against 
the United States in mid-May. Congress must be prepared to repeal the 
offending parts of the statue to bring the U.S. into compliance with 
WTO rules. Congress should not allow retaliation against pork producers 
and other sectors of the U.S. economy.
                              Attachment 1

 Estimated American Job Losses Due to Retaliation for COOL by Canada and
                                 Mexico
------------------------------------------------------------------------
                            Job Losses from $2      Job Losses from $4
                            Billion Retaliation   billion in Retaliation
------------------------------------------------------------------------
             Alabama                       108                     215
              Alaska                         0                       0
             Arizona                       874                   1,749
            Arkansas                       130                     260
          California                       828                   1,657
            Colorado                       230                     460
         Connecticut                       141                     283
            Delaware                        24                      48
             Florida                        93                     186
             Georgia                       227                     454
              Hawaii                         1                       2
               Idaho                        79                     158
            Illinois                       406                     812
             Indiana                       828                   1,657
                Iowa                       598                   1,197
              Kansas                       418                     837
            Kentucky                        74                     148
                    Louisiana              598                   1,197
               Maine                        34                      68
            Maryland                       135                     270
       Massachusetts                       307                     614
            Michigan                     1,473                   2,945
           Minnesota                       245                     491
         Mississippi                       204                     409
            Missouri                       287                     573
             Montana                        14                      28
            Nebraska                       437                     874
              Nevada                        79                     157
       New Hampshire                        74                     147
          New Jersey                       249                     497
          New Mexico                        44                      88
            New York                       367                     734
      North Carolina                       226                     452
        North Dakota                       163                     326
                Ohio                       460                     920
            Oklahoma                        81                     162
              Oregon                        63                     125
        Pennsylvania                       382                     764
        Rhode Island                        22                      44
      South Carolina                       224                     447
        South Dakota                       158                     317
           Tennessee                       448                     896
               Texas                     4,234                   8,468
                Utah                        99                     198
             Vermont                        52                     104
            Virginia                       152                     305
          Washington                       333                     666
       West Virginia                         9                      18
           Wisconsin                       283                     565
             Wyoming                         4                       8
                         -----------------------------------------------
  Total.................                17,000                  34,000
------------------------------------------------------------------------
Source: Dr. Dermot Hayes, Iowa State University.
Based on trade in products likely to be included in Canada's and
  Mexico's retaliation lists, as determined by the COOL Coalition.

                              Attachment 2

          Major COOL Developments & WTO Dispute Settlement Case
------------------------------------------------------------------------
 
------------------------------------------------------------------------
May 13, 2002              COOL provisions are enacted in the 2002 Farm
                           Bill to take effect on September 30, 2004
                           (P.L. 107-171,  10816).
October 30, 2003          USDA's Agricultural Marketing Service (AMS)
                           publishes in the Federal Register the
                           proposed rule on COOL. The comment period,
                           initially to close December 29, 2003, is
                           extended to February 27, 2004.
January 23, 2004          Implementation of COOL for covered commodities
                           except fish and shellfish is delayed until
                           September 30, 2006, per enactment of the FY
                           2004 omnibus appropriations act (P.L. 108-
                           199, Division A,  749).
October 5, 2004           AMS publishes in the Federal Register the
                           interim final rule on COOL for fish and
                           shellfish.
April 4, 2005             COOL labeling for fish and shellfish takes
                           effect.
November 10, 2005         Implementation of COOL for all other covered
                           commodities is delayed until September 30,
                           2008, per enactment of the FY 2006
                           agriculture appropriations act (P.L. 109-97,
                            792).
May 22, 2008              Amendments to the 2002-enacted COOL provisions
                           become law in the 2008 Farm Bill (P.L. 110-
                           246,  11002), to take effect on September
                           30, 2008.
August 1, 2008            AMS publishes in the Federal Register the
                           interim final rule to implement COOL for all
                           covered commodities except fish and
                           shellfish, to take effect on September 30,
                           2008.
December 16, 2008         Canada, joined by Mexico, holds consultations
                           on COOL with the United States.
January 15, 2009          AMS publishes the final rule to implement COOL
                           for all covered commodities, to take effect
                           on March 16, 2009.
February 20, 2009         Secretary of Agriculture sends letter to meat
                           and food industry representatives urging the
                           voluntary adoption of three labeling changes.
March 16, 2009            COOL's final rule for all covered commodities
                           takes effect.
June 5, 2009              Canada holds consultations with the United
                           States to resolve differences on COOL.
October 7, 2009           Canada requests the establishment of a World
                           Trade Organization (WTO) dispute settlement
                           (DS) panel to consider its complaint on the
                           U.S. COOL program. Mexico follows with a
                           comparable request on October 9.
November 19, 2009         WTO establishes a DS panel to consider
                           complaints made by Canada and Mexico on the
                           U.S. COOL program.
November 18, 2011         WTO DS panel releases final report that
                           concludes that some features of U.S. COOL
                           discriminate against foreign livestock and
                           are not consistent with U.S. WTO trade
                           obligations.
March 23, 2012            The United States appeals the WTO DS panel's
                           conclusions.
March 28, 2012            Canada and Mexico also appeal some of the DS
                           panel's conclusions.
June 29, 2012             The WTO's Appellate Body (AB) issues its
                           report, upholding the DS panel finding that
                           U.S. COOL does not favorably treat imported
                           livestock but reversing the other finding
                           that COOL does not provide sufficient
                           information to consumers on the origin of
                           meat products.
July 10, 2012             Canada, Mexico, and the United States withdraw
                           consideration of the AB report from the
                           Dispute Settlement Body (DSB) agenda to
                           provide more time to consult on the 90 day
                           reporting requirement that was missed by the
                           AB.
July 23, 2012             WTO's DSB adopts the AB report and the DS
                           panel report, as modified by the AB report.
August 22, 2012           30 day deadline for the United States to
                           inform the DSB about how it plans to
                           implement the WTO findings.
August 31, 2012           United States informs the DSB that it intends
                           to comply with the WTO recommendations and
                           rulings, and states its need for a
                           ``reasonable period of time'' to do so.
October 4, 2012           With Canada, Mexico, and United States unable
                           to agree on what a reasonable period of time
                           should be and on who the arbitrator should
                           be, the WTO's Director appoints an arbitrator
                           to determine this.
December 4, 2012          WTO's arbitrator announces his determination
                           that the ``reasonable amount of time'' for
                           the United States to implement the DSB's
                           recommendations and rulings is 10 months from
                           when the AB and DS panel reports were adopted
                           (i.e., May 23, 2013).
March 12, 2013            AMS issues a proposed rule to modify certain
                           COOL labeling requirements for muscle-cut
                           commodities to bring them into compliance
                           with WTO's findings and to improve the COOL
                           program's overall operation.
April 11, 2013            Deadline for interested parties to submit
                           comments to AMS on proposed COOL rule.
May 23, 2013              Deadline for the United States to comply with
                           the WTO's findings on U.S. COOL.
May 24, 2013              At the DSB meeting, the United States notifies
                           that it had complied with the WTO findings on
                           COOL by issuing a final rule on May 23. No
                           compliance proceeding was initiated by Canada
                           or Mexico.
June 7, 2013              Canada releases an itemized tariff list of
                           products that could be targeted in a
                           retaliatory action against the United States.
July, August, September   In July, U.S., Canadian, and Mexican meat
 2013                      industry organizations file suit against USDA
                           to block the May 2013 COOL rule. They file a
                           motion for a preliminary injunction against
                           implementing the rule in August. In
                           September, the District Court for the
                           District of Columbia denies the group's
                           request to halt the implementation of the
                           COOL rule.
August 19, 2013           Canada and Mexico notify the DSB that they
                           will request the establishment of a
                           compliance panel at the August 30 meeting of
                           the DSB.
August 30, 2013           The United States objects to the establishment
                           of a compliance panel. The request will be
                           made again at the September DSB meeting on
                           September 25, and the United States will not
                           be able to object to its formation.
September 27, 2013        The DSB selects the members of the compliance
                           panel, the same members that served earlier
                           on the COOL dispute settlement panel.
February 18-19, 2014      The WTO's compliance panel hears the COOL
                           case.
October 20, 2014          The WTO releases the compliance panel report.
                           Parties have 60 days to appeal.
November 28, 2014         The United States appeals the findings of the
                           compliance panel report.
February 16-17, 2014      Appellate Body hears the U.S. appeal of the
                           compliance panel report.
May 18, 2015              Expected date of Appellate ruling on the U.S.
                           appeal.
------------------------------------------------------------------------
Main source: Congressional Research Service RS22955.

                              Attachment 3
   wto summary of key findings of the dispute settlement panel, the 
                appellate body and the compliance panel
Summary of Key Findings of the Initial Dispute Settlement Panel Report, 
        November 18, 2011
    This dispute concerns: (i) the U.S. statutory provisions and 
implementing regulations setting out the United States' mandatory 
country-of-origin labeling regime for beef and pork (``COOL measure''); 
as well as (ii) a letter issued by the U.S. Secretary of Agriculture 
Vilsack on the implementation of the COOL measure (``Vilsack letter'').
    The Panel determined that the COOL measure is a technical 
regulation under the TBT Agreement, and that it is inconsistent with 
the United States' WTO obligations. In particular, the Panel found that 
the COOL measure violates Article 2.1 of the TBT Agreement by according 
less favorable treatment to imported Canadian cattle and hogs than to 
like domestic products. The Panel also found that the COOL measure does 
not fulfil its legitimate objective of providing consumers with 
information on origin, and therefore violates Article 2.2 of the TBT 
Agreement.
    As regards the Vilsack letter, the Panel found that the letter's 
``suggestions for voluntary action'' went beyond certain obligations 
under the COOL measure, and that the letter therefore constitutes 
unreasonable administration of the COOL measure in violation of Article 
X:3(a) of the GATT 1994. The Panel refrained from reviewing the Vilsack 
letter under the TBT Agreement, as it found that this letter is not a 
technical regulation under that agreement.
    In light of the above findings of violation, the Panel did not 
consider it necessary to rule on the claims under Article III:4 of the 
GATT 1994 (national treatment) or on the non violation claims under 
Article XXIII:1(b) of the GATT 1994.
Summary of Key Findings of the Appellate Body Regarding the U.S. Appeal 
        of the Panel Report
    The appeal concerned primarily the COOL measure (the U.S. statutory 
provisions and implementing regulations setting out the United States' 
mandatory country-of-origin labeling regime for beef and pork), and the 
Panel's findings that this measure is inconsistent with Articles 2.1 
and 2.2 of the TBT Agreement. The United States appealed both findings. 
Canada appealed certain aspects of the Panel's analysis under Article 
2.2, and requested the Appellate Body to complete the legal analysis in 
the event that it reversed the Panel's finding under Article 2.2. 
Canada also raised conditional appeals with respect to the COOL measure 
under Articles III:4 and XXIII:1(b) of the GATT 1994. Although Canada 
originally also sought to have the Appellate Body make certain rulings 
with respect to the Vilsack letter, Canada withdrew these requests 
following the United States' assertion that this measure had been 
withdrawn.
    The Appellate Body upheld, albeit for different reasons, the 
Panel's finding that the COOL measure violates Article 2.1 of the TBT 
Agreement by according less favorable treatment to imported Canadian 
cattle and hogs than to like domestic cattle and hogs. The Appellate 
Body reversed the Panel's finding that the COOL measure violates 
Article 2.2 of the TBT Agreement because it does not fulfil its 
legitimate objective of providing consumers with information on origin, 
and was unable to complete the legal analysis and determine whether the 
COOL measure is more trade restrictive than necessary to meet its 
objective.
    In its analysis under Article 2.1 of the TBT Agreement, the 
Appellate Body agreed with the Panel that the COOL measure has a 
detrimental impact on imported livestock because its record-keeping and 
verification requirements create an incentive for processors to use 
exclusively domestic livestock, and a disincentive against using like 
imported livestock. The Appellate Body found, however, that the Panel's 
analysis was incomplete because the Panel did not go on to consider 
whether this de facto detrimental impact stems exclusively from a 
legitimate regulatory distinction, in which case it would not violate 
Article 2.1.
    In its own analysis, the Appellate Body found that the COOL measure 
lacks even-handedness because its record-keeping and verification 
requirements impose a disproportionate burden on upstream producers and 
processors of livestock as compared to the information conveyed to 
consumers through the mandatory labeling requirements for meat sold at 
the retail level. That is, although a large amount of information must 
be tracked and transmitted by upstream producers for purposes of 
providing consumers with information on origin, only a small amount of 
this information is actually communicated to consumers in an 
understandable or accurate manner, including because a considerable 
proportion of meat sold in the United States is not subject to the COOL 
measure's labeling requirements at all. Accordingly, the detrimental 
impact on imported livestock cannot be said to stem exclusively from a 
legitimate regulatory distinction, and instead reflects discrimination 
in violation of Article 2.1. For these reasons, the Appellate Body 
upheld the Panel's finding under Article 2.1.
    In its analysis under Article 2.2 of the TBT Agreement, the 
Appellate Body found that the Panel properly identified the objective 
of the COOL measure as being ``to provide consumer information on 
origin'', and did not err in concluding that this is a ``legitimate'' 
objective. The Appellate Body found, however, that the Panel erred in 
its interpretation and application of Article 2.2. This was because the 
Panel appeared to have considered, incorrectly, that a measure could be 
consistent with Article 2.2 only if it fulfilled its objective 
completely or exceeded some minimum level of fulfillment, and to have 
ignored its own findings, which demonstrated that the COOL measure does 
contribute, at least to some extent, to achieving its objective. The 
Appellate Body therefore reversed the Panel's finding that the COOL 
measure is inconsistent with Article 2.2, but was unable to determine 
whether the COOL measure is more trade restrictive than necessary to 
fulfil a legitimate objective within the meaning of Article 2.2.
    As the conditions on which Canada's appeals with respect to 
Articles III:4 and XXIII:1(b) of the GATT 1994 were made were not 
satisfied, the Appellate Body made no findings under these provisions.
    At its meeting on 23 July 2012, the DSB adopted the Appellate Body 
report and the panel report, as modified by the Appellate Body report.
Findings of the Compliance Panel with Respect to the Challenge by 
        Canada and Mexico that the Revised U.S., Cool Regulation 
        Complies with the Dispute Settlement Body Recommendations
    The compliance panel found that the amended COOL measure violates 
Article 2.1 of the TBT Agreement because it accords to Canadian and 
Mexican livestock less favourable treatment than that accorded to like 
U.S. livestock. In particular, the compliance panel concluded that the 
amended COOL measure increases the original COOL measure's detrimental 
impact on the competitive opportunities of imported livestock in the 
U.S. market, because it necessitates increased segregation of meat and 
livestock according to origin; entails a higher record-keeping burden; 
and increases the original COOL measure's incentive to choose domestic 
over imported livestock. Further, the compliance panel found that the 
detrimental impact caused by the amended COOL measure does not stem 
exclusively from legitimate regulatory distinctions. In this regard, 
the compliance panel followed the approach of the Appellate Body in the 
original dispute by taking into account the amended COOL measure's 
increased record-keeping burden, new potential for label inaccuracy, 
and continued exemption of a large proportion of relevant products. 
These considerations confirmed that, as with the original COOL measure, 
the detrimental impact caused by the amended COOL measure's labeling 
and record-keeping rules could not be explained by the need to convey 
to consumers information regarding the countries where livestock were 
born, raised, and slaughtered.
    The compliance panel determined that the complainants had not made 
a prima facie case that the amended COOL measure is more trade 
restrictive than necessary within the meaning of Article 2.2 of the TBT 
Agreement. In reaching this conclusion, the compliance panel found that 
the amended COOL measure makes a considerable but, given the exemptions 
from coverage, necessarily partial contribution to its objective of 
providing consumer information on origin.
    The compliance panel further found that the amended COOL measure 
had increased the ``considerable degree of trade-restrictiveness'' 
found in the original dispute. The compliance panel also assessed the 
risks non-alignment of the objective would create in terms of consumer 
interest in, and willingness to pay for, different types of country-of-
origin information. Additionally, the compliance panel reviewed four 
alternative measures proposed by the complainants and concluded that 
either they would not make an equivalent contribution to the relevant 
objective as the amended COOL measure would, or they were not 
adequately identified so as to enable meaningful comparison with the 
amended COOL measure. As a result, the compliance panel was not able to 
conclude that the amended COOL measure is more trade restrictive than 
necessary in the light of the proposed alternative measures.
    The compliance panel found that the amended COOL measure violates 
Article III:4 of the GATT 1994 based on its finding that the amended 
COOL measure increases the original COOL measure's detrimental impact 
on the competitive opportunities of imported livestock in comparison 
with like U.S. products. In this regard, the compliance panel relied on 
the same considerations that informed its finding of detrimental impact 
under Article 2.1 of the TBT Agreement. However, consistent with 
Appellate Body jurisprudence, it was not necessary in order to find a 
violation under Article III:4 of the GATT 1994 for the compliance panel 
to determine whether the detrimental impact stemmed exclusively from 
legitimate regulatory distinctions.

    The Chairman. Thank you, Mr. Weber.
    Mr. Wenk.

          STATEMENT OF CHRISTOPHER W. WENK, EXECUTIVE
  DIRECTOR OF INTERNATIONAL POLICY, U.S. CHAMBER OF COMMERCE, 
                        WASHINGTON, D.C.

    Mr. Wenk. Chairman Rouzer, Members of the Subcommittee, the 
U.S. Chamber is taking part in today's important hearing as co-
chair, alongside the NAM (National Association of 
Manufacturers) of the COOL Reform Coalition. Launched 1 year 
ago, the COOL Reform Coalition includes companies and 
associations from a wide variety of sectors, including 
agriculture, agrifood and manufacturing that are advocating for 
U.S. compliance with obligations it has undertaken in the WTO 
agreements relating to the topic of this hearing.
    COOL requirements are common and are often fully compatible 
with WTO agreements; however, an unambiguous series of rulings 
by WTO panels has recognized the U.S. COOL rule for muscle cuts 
of meat imposes real economic costs on the meat industry by 
forcing segregation of cattle and hogs, and requiring costly 
tracking systems and record-keeping. By imposing new costs 
exclusively on Canadian and Mexican producers has a 
discriminatory trade impact. This dispute has been unfolding 
for years and is now entering its final stage.
    Why does this matter? Canada and Mexico are by far the 
largest markets for U.S. exports. Trade with our neighbors has 
reached $1.3 trillion annually. U.S. merchandise exports to 
Canada and Mexico rose by 66 percent over the past 5 years, 
topping $550 billion last year.
    As noted, the COOL Reform Coalition is seeking U.S. 
compliance with its obligation under the WTO agreements. Our 
coalition is building on years of work by a variety of 
organizations representing ranchers, farmers, and food and 
agriculture businesses impacted by the COOL rule for muscle 
cuts of meat. Broad industry groups such as the Chamber have 
joined the debate over COOL to signal our concern about the 
broad impact retaliation could have on a wide variety of 
industries, including many well removed from agriculture. The 
Governments of Canada and Mexico have indicated they are fully 
prepared to proceed with WTO authorized retaliation against 
U.S. exports of agricultural, agrifood, and manufactured goods 
as soon as this summer, pending the outcome of the final 
appeal.
    WTO-authorized retaliation by these two vital trading 
partners could result in billions of dollars of losses across 
multiple sectors. Many U.S.-made products will be subject to 
the steep tariffs that would effectively bar them from Canadian 
and Mexican markets.
    A consensus has emerged that Congressional action is 
required to avert retaliation, and time for Congress to do so 
is running out. The WTO appellate body will release its final 
ruling no later than May 18, at which time it will be made 
public. Expert opinion is unanimous. This last ruling will 
confirm the U.S. is violating obligations it has undertaken as 
the member of the WTO. Over the past several years, the avenues 
open to the United States to avoid retaliation have dwindled. 
Our coalition proposed and advocated for several approaches, 
which are no longer feasible. Given the period of as little as 
60 days between the announcement of the final ruling in May, 
and retaliation by Canada and Mexico, the only way to avert 
costly retaliation is for Congress to approve legislation 
repealing the COOL rule for muscle cuts of meat. For these 
reasons, the Chamber strongly urges Congress to move swiftly to 
approve legislation repealing the COOL requirements for muscle 
cuts of meat due to the imminent and all but certain adverse 
ruling by the WTO appellate body in May. Failure to do so would 
cost tens of thousands of American jobs, and jeopardize 
mutually beneficial trade relationships with our two closest 
neighbors and largest export markets.
    The U.S. Chamber of Commerce and members of the COOL Reform 
Coalition appreciate the Committee's attention to this vital 
matter, and look forward to working with this Committee to 
reach this goal.
    Thank you for the opportunity to testify today.
    [The prepared statement of Mr. Wenk follows:]

   Prepared Statement of Christopher W. Wenk, Executive Director of 
    International Policy, U.S. Chamber of Commerce, Washington, D.C.
    The U.S. Chamber of Commerce is the world's largest business 
federation representing the interests of more than three million 
businesses of all sizes, sectors, and regions, as well as state and 
local chambers and industry associations.
    More than 96% of Chamber member companies have fewer than 100 
employees, and many of the nation's largest companies are also active 
members. We are therefore cognizant not only of the challenges facing 
smaller businesses, but also those facing the business community at 
large.
    Besides representing a cross-section of the American business 
community with respect to the number of employees, major 
classifications of American business--e.g., manufacturing, retailing, 
services, construction, wholesalers, and finance--are represented. The 
Chamber has membership in all 50 states.
    The Chamber's international reach is substantial as well. We 
believe that global interdependence provides opportunities, not 
threats. In addition to the American Chambers of Commerce abroad, an 
increasing number of our members engage in the export and import of 
both goods and services and have ongoing investment activities. The 
Chamber favors strengthened international competitiveness and opposes 
artificial U.S. and foreign barriers to international business.
    Positions on issues are developed by Chamber members serving on 
committees, subcommittees, councils, and task forces. Nearly 1,900 
businesspeople participate in this process.
    On the occasion of this hearing of the House Agriculture Committee 
on ``the implications of potential retaliatory measures taken against 
the United States in response to meat labeling requirements,'' I am 
pleased to testify on behalf of the U.S. Chamber of Commerce and our 
members. The Chamber is the world's largest business federation, 
representing the interests of more than three million businesses of all 
sizes, sectors, and regions, as well as state and local chambers of 
commerce and industry associations.
    The Chamber is taking part in today's hearing as co-chair--
alongside the National Association of Manufacturers (NAM)--of the COOL 
Reform Coalition. Launched 1 year ago, the COOL Reform Coalition 
includes companies and associations from a wide variety of sectors--
including agriculture, agrifood, and manufacturing--that are advocating 
for U.S. compliance with obligations it has undertaken in the World 
Trade Organization (WTO) agreements relating to the topic of this 
hearing.
    Country-of-origin labeling (COOL) requirements are common, and as 
promulgated in many countries and for many products, they are often 
fully compatible with the World Trade Organization (WTO) agreements. At 
least 70 countries have some kind of country-of-origin labeling 
requirement. In the United States, mandatory COOL rules require most 
retailers to provide country-of-origin labeling for fresh fruits and 
vegetables, fish, shellfish, peanuts, pecans, macadamia nuts, ginseng, 
meat and poultry.
    The dispute under discussion today only involves muscle cuts of 
meat. It arose because, 2 decades after the North American Free Trade 
Agreement (NAFTA) entered into force, U.S. meat producers and their 
counterparts in Canada and Mexico have come to treat North America as 
an integrated market--just as U.S. manufacturers do.
    It often makes good economic sense for cattle to be born, raised, 
and slaughtered in different places across the continent--north or 
south of the 49th parallel, or north or south of the Rio Grande. Taking 
these realities into account, the WTO has recognized the U.S. COOL rule 
for muscle cuts of meat imposes real economic costs on the meat 
industry by forcing segregation of cattle and hogs and requiring costly 
tracking systems and record keeping. These costs are real, and they 
make labeling requirements for meat different than for, say, almonds or 
apples, which are grown in one spot.
The WTO Dispute
    This dispute has been unfolding for years, and it is now entering 
its final stage. The COOL rule for muscle cuts of meat is required by 
the 2002 Farm Bill as amended by the 2008 Farm Bill. In late 2009, less 
than 1 year after the COOL rule for muscle cuts of meat took effect, 
Canada and Mexico began the process of challenging it at the WTO. They 
argued that COOL reduces the value and number of cattle and hogs 
shipped to the U.S. market; by imposing new costs exclusively on 
Canadian and Mexican producers, it has a discriminatory, trade-
distorting impact.
    In July 2012, the WTO Dispute Settlement Body adopted an Appellate 
Body ruling that the COOL rule for muscle cuts of meat violated the WTO 
Technical Barriers to Trade (TBT) Agreement because it treats imported 
Canadian cattle and hogs, and imported Mexican cattle, less favorably 
than domestic livestock.
    A deadline of May 23, 2013, was set for the U.S. Department of 
Agriculture (USDA) to bring U.S. regulations into alignment with 
obligations the United States has undertaken in the WTO agreements. On 
that date, USDA published a revised rule. Government officials of both 
Canada and Mexico stated that the revisions were inadequate. On 
September 25, 2013, Canada and Mexico requested the establishment of a 
compliance panel to determine whether the revised rule is compliant 
with obligations the United States has undertaken in the WTO 
agreements.
    On October 20, 2014, a WTO compliance panel report again found the 
United States had failed to comply with its WTO obligations. In fact, 
it found the revised rule was even more discriminatory than the earlier 
version. The following month, the United States appealed this decision, 
and the WTO Appellate Body expects to circulate its ruling on the 
appeal no later than May 18, at which time it will be made public.
    In other words, the end of this long and winding road is within 
sight. The pain for U.S. agriculture and industry, however, could be 
just beginning.
Trade with Canada, Mexico is Vital to U.S.
    The importance of the U.S. trade relationship with Canada and 
Mexico for American workers, farmers, ranchers, and companies of all 
kinds is worth bearing in mind. A trade dispute with a minor commercial 
partner can be damaging; a trade dispute with the two largest markets 
for U.S. exports could be highly damaging. Consider the dimensions of 
our economic ties to Canada and Mexico today:
Trade
   Since the North American Free Trade Agreement (NAFTA) 
        entered into force in 1994, trade with Canada and Mexico has 
        risen nearly fourfold to $1.28 trillion in 2013, and the two 
        countries buy about \1/3\ of all U.S. merchandise exports.

   The trade boom continues. U.S. merchandise exports to Canada 
        and Mexico rose by 66% over the past 5 years, reaching $552 
        billion in 2014. In fact, our North American neighbors provided 
        39% of all growth in U.S. merchandise exports in the 2009-2014 
        period.

   Canada (population 36 million) again edged the EU 
        (population 500 million) as the top market for U.S. goods 
        exports in 2014. U.S. merchandise exports to Mexico (population 
        125 million) were nearly double those to China (population 1.4 
        billion), which is the third largest national market for U.S. 
        exports.

   In fact, the United States in 2014 had a trade surplus in 
        manufactured goods ($21.6 billion (http://www.trade.gov/mas/
        ian/build/groups/public/@tg_ian/documents/webcontent/
        tg_ian_003368.pdf)) with Canada and Mexico, just as it has for 
        the past 4 years. In 2013, the U.S. services trade surplus with 
        Canada and Mexico reached $45 billion (http://www.bea.gov/
        itable/). The U.S. remains a significant net importer of 
        petroleum from its North American neighbors.
Jobs
   Trade with Canada and Mexico supports nearly 14 million U.S. 
        jobs, and nearly 5 million of these net jobs are supported by 
        the increase in trade generated by NAFTA, according to a 
        comprehensive economic study (http://www.uschamber.com/reports/
        opening-markets-creating-jobs-estimated-us-employment-effects-
        trade-fta-partners) commissioned by the U.S. Chamber.

   The expansion of trade unleashed by NAFTA supports tens of 
        thousands of jobs in each of the 50 states and more than 
        100,000 jobs in each of 17 states, according to the same study.
Manufacturing
   Canadians and Mexicans purchased U.S. manufactured goods 
        valued at $486 billion in 2014, generating more than $40,000 in 
        export revenue for every American factory worker. To put this 
        in context, these export earnings are equivalent to about half 
        the annual earnings--including pay and benefits--of the typical 
        American factory worker ($77,500).
Agriculture
   NAFTA has been a bonanza for U.S. farmers and ranchers. U.S. 
        agricultural exports to Canada and Mexico rose by nearly 50% 
        between 2007 and 2013, increasing from $27 billion to nearly 
        $40 billion. Canada was the largest agricultural export market 
        of the United States until it was overtaken by China in 2013, 
        and U.S. agricultural exports to Mexico have quintupled since 
        NAFTA entered into force.
Services
   With new market access afforded by NAFTA, U.S. services 
        exports to Canada and Mexico have tripled, rising from $27 
        billion in 1993 to $93 billion in 2013. Among the services 
        industries that are benefiting are: audiovisual; finance; 
        insurance; transportation, logistics, and express delivery 
        services; and software and information technology services.
Small Businesses
   Canada and Mexico are the top two export destinations for 
        U.S. small- and medium-size enterprises, more than 125,000 of 
        which sold their goods and services in Canada and Mexico in 
        2011 (latest available).
The Consequences of Noncompliance
    As noted, the COOL Reform Coalition is seeking U.S. compliance with 
its obligations under the WTO agreements. Our coalition is building on 
years of work by a variety of organizations representing ranchers, 
farmers, and food and agriculture businesses impacted by the COOL rule 
for muscle cuts of meat.
    Broad industry groups such as the Chamber have joined in the debate 
over COOL to signal our concern about the broad impact retaliation 
could have on a wide variety of industries, including many well removed 
from agriculture. The governments of Canada and Mexico have indicated 
they are fully prepared to proceed with WTO-authorized retaliation 
against U.S. exports of agricultural, agrifood, and manufactured goods 
as soon as this summer, pending the outcome of the final appeal.
    WTO-authorized retaliation by these two vital U.S. trading partners 
could result in losses in the billions of dollars across multiple 
sectors including, but not limited to, food production, agriculture, 
and manufacturing. Many U.S.-made products would be subjected to steep 
tariffs that would effectively bar them from the Canadian and Mexican 
markets. As noted, the stakes are especially high because these are by 
far our largest export markets.
    Our coalition website (www.COOLReform.com) offers a map that shows 
the products likely to face retaliation and the states where these 
agricultural and manufactured goods are produced. It is based on 
information provided by the governments of Canada and Mexico, 
indicating their explicit intentions to retaliate should the United 
States fail to comply with its trade obligations, driving home the 
potential cost to communities all across the United States.
    Earlier experiences underscore how painful retaliation could be for 
American workers, farmers, and companies. After a dispute settlement 
panel ruled in Mexico's favor in the cross-border trucking dispute 
several years ago, Mexico levied steep retaliatory duties on $2.4 
billion worth of U.S. goods. The impact was devastating for tens of 
thousands of American workers and farmers. Many of the same products 
are likely to be targeted in the event retaliation goes forward in the 
COOL dispute.
    One prominent COOL supporter told a recent press conference that 
``undoubtedly the result of [an] appeal is going to be somewhat 
different'' from the October ruling. He further said ``there is strong 
legal standing to resolve the dispute,'' and he said the United States 
``may win on appeal.''
    This is highly unlikely. Not only have WTO panels issued multiple 
adverse rulings, the most recent WTO panel report finds the United 
States has violated not just one but two agreements--the bedrock GATT 
1994 agreement, which is the cornerstone of the WTO and the global 
rules-based trading system, and the TBT agreement. As noted, the report 
found the latest, revised version of the COOL rule was even more 
discriminatory than its predecessor. In any event, there will be no 
denying the immediacy of the problem when the final ruling is released 
within approximately 8 weeks.
The U.S. Must Meet its WTO Obligations
    It is clearly in the long-term economic interests of the United 
States to comply with the rules of the international trading system. 
After all, our country did more than any other to write these rules, 
from the General Agreement on Tariffs and Trade in 1947 to the creation 
of the WTO in 1995.
    A host of studies shows the United States derives tremendous 
benefits from the open international trading system. One widely cited 
study shows that trade liberalization under these rules has boosted the 
income of the average American household by about $10,000 annually.
    As a nation, the United States flaunts its obligations under the 
rules-based trading system at our peril. Since the WTO was created in 
1995, other countries have brought a number of disputes against the 
United States to the WTO, and the United States has lost a number of 
these. The United States has always (eventually) amended its laws or 
changed its practices to conform to these adverse rulings. The United 
States has done so because it is in the country's interest to do so.
    Further, American workers, farmers, and companies rely on these 
rules to secure access to overseas markets. Just a few months ago, a 
WTO panel ruled against India in a dispute brought by the United States 
relating to Indian restrictions on the importation of U.S. agricultural 
products. As U.S. Trade Representative Michael Froman said at the time: 
``This victory affirms the Administration's commitment to ensuring WTO 
Members play by the rules, and that America's farmers, workers and 
businesses get the fair shot they deserve to sell Made-in-America goods 
under WTO rules.''
    Today, the shoe is on the other foot. More than 95% of the world's 
consumers live outside our markets, but American farmers, workers, and 
companies will not be able to sell their goods and services to those 
consumers if we fail to live up to these rules ourselves.
The Goal of the Coalition
    A consensus has emerged that Congressional action is required to 
avert retaliation, and time for Congress to do so is running out. The 
WTO Appellate Body has announced it will circulate its ruling on the 
final U.S. appeal no later than May 18. WTO-authorized retaliation by 
Canada and Mexico could be authorized as soon as 60 days thereafter.
    As we learned in the U.S.-Mexico cross-border trucking dispute, 
export sales of products targeted for retaliation can be lost even 
before authorized retaliation goes into effect. Sourcing managers 
planning future purchases will take into account likely retaliation and 
shift to vendors in other jurisdictions in response to the mere 
possibility of higher tariff-related costs in their supply chains. Once 
these sourcing relationships are lost, it can be years for companies to 
recover lost market share.
    Over the past several years, the avenues open to the United States 
to avoid retaliation have dwindled. Our coalition proposed and 
advocated for several approaches which are no longer feasible. Given 
the period of as little as 60 days between the announcement of the 
final ruling in May and retaliation by Canada and Mexico, the only way 
to avert costly retaliation is for Congress to approve legislation 
repealing the COOL rule for muscle cuts of meat.
    For these reasons, the Chamber strongly urges Congress to move 
swiftly to approve legislation repealing the COOL requirements for 
muscle cuts of meat due to the imminent and all-but-certain adverse 
ruling by the WTO Appellate Body in May. Failure to do so could cost 
tens of thousands of American jobs and jeopardize mutually beneficial 
trade relationships with our two closest neighbors and largest export 
markets.
    The U.S. Chamber of Commerce and members of the COOL Reform 
Coalition appreciate the Committee's attention to this vital matter and 
look forward to working with the Committee to reach this goal.

    The Chairman. Mr. Johnson.

STATEMENT OF ROGER JOHNSON, PRESIDENT, NATIONAL FARMERS UNION, 
                        WASHINGTON, D.C.

    Mr. Johnson. Thank you, Mr. Chairman, for the opportunity 
to testify on County-of-Origin Labeling, and the status of the 
WTO dispute.
    U.S. producers overwhelmingly support COOL. They are proud 
of what they produce. Consumers demand more and more 
information about the food that they purchase.
    In July of 2013, AMI, NCBA, NPPC, and others representing 
meatpackers, went to court to block USDA's revised COOL rule. 
The packers essentially argued that their First Amendment right 
to free speech included their right to not tell consumers what 
they didn't want consumers to know. Ultimately, courts found in 
favor of USDA and in favor of the COOL label.
    Now, as to the WTO dispute, USDA issued a final rule to 
implement COOL in 2009. Canada and Mexico challenged that law 
and rules of the WTO, claiming that COOL created a trade-
distorting impact by reducing the value and number of cattle 
and hogs shipped to the U.S. In 2011, the WTO dispute 
settlement body found that COOL does not provide enough 
accurate information to consumers, objecting to commingling and 
to confusing language. The appellate body also found that the 
objective of COOL was, in fact, legitimate under WTO rules. The 
appellate body finally found that record-keeping and 
verification requirements were disproportionate with the 
information conveyed to consumers.
    In response, 2 years ago, USDA changed the rules to require 
labels that show each production step and prohibited 
commingling. Canada appealed, and WTO, last October, found that 
the revised rule improved the amount of information to 
consumers, but still required collection of too much 
information. The panel also noted that COOL was the least 
trade-restrictive measure to achieve the objectives of consumer 
disclosure. Both Canada and the U.S. subsequently appealed.
    Its ruling is now expected in May 18. Given the narrowing 
of the scope of the issues in each successive WTO decision, it 
is entirely feasible that the appellate body may rule in favor 
of the U.S. If the body rules against the U.S., the WTO process 
provides for arbitration, after which potential sanctions could 
be authorized. In that case, a recent study by Auburn 
University's Dr. Taylor is important because it concludes that 
Canadian and Mexico beef producers suffered no damage as a 
result of COOL. That study is attached to my testimony.
    Canada has been threatening retaliation, as we all know. 
Dr. Taylor, however, using mandatory price reporting data 
reported by the meatpackers, recently found that ``COOL did not 
directly cause the declines in livestock exports to the U.S., 
which largely coincided with the substantial economic downturn 
that sapped demand for more expensive meat products.'' The 
report issued three main and substantial findings. First, fed-
cattle prices basis actually declined after COOL went into 
effect, meaning Canadian cattle producers and U.S. cattle 
producers received the same price for the same product after 
COOL as before COOL. Second, COOL did not negatively impact 
imports of slaughter cattle. And third, COOL did not 
significantly affect imports of feeder cattle.
    Dr. Taylor's study was very robust, and directly 
contradicts the study that the Canadians had entered into the 
WTO record using proprietary data that is, frankly, not 
publicly available. The robust study conducted by Dr. Taylor 
demonstrates that Canada and Mexico's argument of restricted 
market access to the U.S. market as a result of COOL is simply 
not true. Importation of cattle from other markets is subject 
to a number of other variables that are independent of COOL. 
COOL has not had a negative impact on the Canadian industry. 
This study is extremely important when assessing retaliatory 
claims made by Canada and Mexico.
    I would urge you to wait until we get a final decision from 
the WTO before any legislation is considered.
    Thank you.
    [The prepared statement of Mr. Johnson follows:]

Prepared Statement of Roger Johnson, President, National Farmers Union, 
                            Washington, D.C.
Introduction
    On behalf of family farmers, ranchers, and rural members of 
National Farmers Union (NFU), thank you for the opportunity to testify 
regarding the Country-of-Origin Labeling (COOL) law and the results of 
the pending World Trade Organization (WTO) dispute. NFU was organized 
in Point, Texas in 1902 with the mission of improving the well-being 
and economic opportunity for family farmers, ranchers, and rural 
communities through grassroots-driven advocacy. That mission still 
drives NFU's work today. As a general farm organization, NFU represents 
agricultural producers across the country and in all segments of the 
livestock industry, including many cow/calf operators. The U.S. has the 
largest fed-cattle industry in the world and the largest production of 
high-quality, grain-fed beef. More than 35 percent of farm operations 
in the U.S. are classified as beef cattle operations.\1\
---------------------------------------------------------------------------
    \1\ USDA 2012 Census of Agriculture.
---------------------------------------------------------------------------
    Although Congress passed the first COOL laws for food in the 2002 
Farm Bill, labeling laws have existed in the U.S. since 1890. Tariff 
laws have required nearly all imports to display labels so that the 
consumer can identify the country-of-origin. For over 100 years, most 
agricultural commodities were excluded from the labeling laws. For 
decades, both consumers and farm organizations such as NFU have 
advocated that imported food ought to display the country-of-origin 
just like nearly every other product imported into the U.S. Farmers and 
ranchers support COOL because they are proud of the fruits, vegetables, 
nuts, and meat they produce. Consumers demand more and more information 
about the food they purchase and COOL gives them one more tool to make 
informed decisions. Over 10 years of consumer polling demonstrates that 
the vast majority of consumers want country-of-origin labels (Appendix 
A).
    Since well before passage of the law or implementation of the first 
label, COOL has had its critics including those who filed a lawsuit in 
the U.S. District Court for the District of Columbia. In July of 2013, 
the American Meat Institute, the National Cattlemen's Beef Association 
and the National Pork Producers Council and several other trade 
associations representing meatpackers and feedlot operators went to the 
courts in an attempt to block USDA's revised COOL rule. They challenged 
the labels were a violation of the COOL statute and their First 
Amendment rights. Despite the vast consumer support and the long 
history of origin labels, the meat industry argued that their First 
Amendment right to free speech included their right not to tell 
consumers what they did not want consumers to know! Ultimately, the 
District Court, a three-judge panel of the D.C. Circuit Court, and the 
en banc court all found in favor of USDA and the COOL label. Earlier 
this year, the North American Meat Institute agreed to drop the lawsuit 
after the D.C. Circuit Court denied their petition for a rehearing on 
the statutory claim.
WTO Dispute
    In 2009, the U.S. issued a final rule to implement COOL as directed 
by the 2008 Farm Bill. The regulations resulted in labels that were 
misleading and confusing, such as ``Product of U.S., Canada'' or 
``Product of Canada, U.S.'' NFU and many others supported a more 
detailed and accurate label that included information on where the 
animal was born, raised, and slaughtered. Prior to implementation of 
the final rule, Canada and Mexico challenged the law and interim 
regulations at the WTO claiming that COOL was inconsistent with the 
U.S.'s trade obligations by creating a trade-distorting impact by 
reducing the value and number of cattle and hogs shipped to the U.S. 
COOL implementation occurred just as the economy entered the Great 
Recession. Many factors influenced the cattle industry, outside of 
agriculture, including the value of the dollar as compared to the 
loony, large decreases in household incomes and consumer uncertainty. 
Income constrained consumers eat less beef and pork. In fact, price 
elasticity is one of the highest for any single food category; 
consumers are more sensitive to changes in beef prices as compared to 
other food products.
    In 2011, the Dispute Settlement Body issued its report. The panel 
found that the COOL measure does not fulfil its legitimate objective of 
providing consumers with information on origin under Article 2.2 
because the label did not provide enough information to consumers 
regarding the country-of-origin, which was later overturned by the 
Appellate Body. The label did not provide enough information on each 
production step because the label allowed for commingling and was 
needlessly confusing.
    In 2012, the U.S. and Canada appealed certain issues covered in the 
panel report to the WTO Appellate Body. The Appellate Body found that 
the objective of COOL was, in fact, legitimate under WTO rules. This 
Appellate Body decision thus narrowed the scope of noncompliance with 
U.S. WTO obligations. The Appellate Body found that the record-keeping 
and verification requirements were disproportionate with the 
information conveyed to consumers on labels. All of the information 
that was required to be tracked was not communicated to consumers in an 
understandable manner or was inaccurate altogether. The costs of the 
regulation exceeded the benefit from disclosure in large part because 
the labels were so poor at communicating the information that was 
tracked by packers. Warnings of segregation costs have been massively 
overstated. Packers already have many tracking requirements including 
marketing traits such as Angus or grass-fed, USDA grades, and food 
safety.
    In response to the WTO findings, the U.S. Department of Agriculture 
(USDA) made changes to the COOL requirements to comply with the WTO 
requirements. This included requiring labels that show each production 
step and prohibited the commingling of muscle cuts of meat from 
different origins. This provided much more specific and accurate 
information to consumers. After implementation of the revised final 
rule, Canada requested the establishment of a compliance panel.
    The compliance panel report was distributed in October of 2014. The 
panel found that the revised rule resulted in an improvement in the 
amount of information that was conveyed to consumers, but the remaining 
exemptions and the lack of precision for labeling of meat from animals 
with origins from more than one country meant the COOL measures still 
required collection of more information than what was distributed to 
consumers. The panel also noted that COOL was the least trade 
restrictive measure to achieve the objectives of consumer disclosure.
    Both Canada and the U.S. have appealed the compliance panel report 
to the Appellate Body. The Appellate Body is expected to issue its 
ruling by May 18. Given the narrowing of the scope of issues with the 
COOL measure, it is entirely feasible that the Appellate Body may rule 
in favor of the U.S. Once the WTO Appellate Body issues its report, and 
only at that time, would any governmental or legislative action be 
appropriate.
    Once the WTO Appellate Body issues its report, the WTO dispute 
resolution process has another phase for arbitrations. Arbitration must 
be completed within 60 days of the report. Only after the arbitration 
phase would sanctions be authorized. Arguments would be heard by the 
arbitrator regarding the extent of the damages. Canada and Mexico would 
be required to prove the extent to which they suffered damages from 
market access restrictions, at which point their claims of $1 to $2 
billion would be heavily scrutinized.
    Critics of COOL, including the Canadian Government, have pressured 
Congress for reform of the law. Yet under the guise of reform, they 
have pushed for repeal of all or portions of the law that have no 
bearing on the WTO dispute, such as removing labels from chicken. As 
critics of the law have continued to point out, the U.S. has agreed to 
abide by the obligations of the WTO agreement. As the WTO dispute 
resolution process is still very much underway, Congressional action is 
not required at this time. It is highly unconventional for Congress to 
intervene in the WTO process until the WTO issues its final decision.
Economic Analysis on Impacts to Cattle Industry
    Given Canada's shocking estimates of authorized retaliation, C. 
Robert Taylor, PhD, Alfa Eminent Scholar at Auburn University, analyzed 
Mandatory Price Reporting (MPR) data, which is required to be reported 
by the meatpackers. Dr. Taylor conducted a longitudinal, multivariate 
econometric analysis (Appendix B). His analysis found that, ``COOL did 
not directly cause the declines in livestock exports to the United 
States, which largely coincided with a substantial economic downturn 
that sapped demand for more expensive meat products.'' The report 
issued three main and substantial findings: (1) Fed cattle price basis) 
declined after COOL went into effect (meaning Canadian cattle producers 
and U.S. cattle producers received the same price for the same product 
after COOL as before COOL; (2) COOL did not negatively impact imports 
of slaughter cattle; and (3) COOL did not significantly affect imports 
of feeder cattle.
    The study used more robust data sources than the reports submitted 
to the WTO by Daniel Sumner, PhD, and Sebastien Pouliot, PhD. Sumner 
and Pouliot used proprietary data provided to them by the Canadian 
Cattlemen's Association, a staunch opponent of COOL. Dr. Taylor's 
analysis used the same metrics of cattle exports' market access as the 
Sumner and Pouliot studies, including the difference between Canadian 
and U.S. cattle prices, the share of imported cattle processed in U.S. 
slaughterhouses, and the share of Canadian feeder cattle placed on U.S. 
feedlots. Each of these indicators was analyzed qualitatively and 
econometrically using MPR data and monthly trade statistics. The 
econometric analysis was much more robust, providing conclusive 
evidence that the previous analysis done had reached erroneous 
conclusions. The analysis addressed omitted variable bias and model 
specification limitations. The Sumner and Pouliot analyses failed to 
account for comparable cattle purchase arrangement techniques 
(negotiated purchase, captive supplies, and packer-owned cattle). 
Sumner and Pouliot also failed to compare cattle of similar grades.
Fed Cattle Price Basis Declined After COOL Went Into Effect
    The weekly MPR data showed that the price basis was generally lower 
by class, grade, and purchase arrangement after COOL implementation 
than the previous 4 years (Appendix B). If the claims of substantial 
segregation costs for COOL compliance rang true, the industry would 
expect to see an increase in the price basis after COOL went into 
effect. Table 1 of the report (Appendix [D]) shows the price basis by 
class, grade, and purchase arrangement before and after COOL 
implementation computed as paired averages. Due to the differences in 
purchase arrangements domestically and in Canada, comparisons must 
include analysis of the types of purchase arrangements. Imported 
slaughter cattle are often purchased under a forward contract, but 
domestic acquisitions are usually under formula arrangements or the 
cash market. The weekly prices received for imported and domestic 
slaughter steers and heifers averaged over all grades and purchase 
arrangements generally moved together (small basis) except for in 2008 
and 2009 when import prices were well above domestic prices and in 2011 
and 2014 when import prices were well below domestic prices. The 
differences are not due to COOL, but rather are due to different 
arrangements dominating domestic and import slaughter cattle purchases. 
For instance, forward contracts accounted for 54 percent of imports, 
but only eight percent of domestic slaughter over the past 10 years.
COOL Did Not Negatively Impact Imports of Slaughter Cattle
    Sumner and Pouliot reported finding that COOL negatively impacted 
imports of slaughter cattle, but in statistical terms, this finding is 
not robust. Their model suffered from omitted variable bias and 
confounded results. Taylor reports that with the addition of weekly 
captive supply and more observations dating back to 1995 (to account 
for the ban due to Bovine spongiform encephalopathy), the results of 
the Sumner and Pouliot regression gives statistically insignificant 
results. Taylor's finding is more robust than the Sumner and Pouliot 
finding. Including captive supplies of both domestic and foreign 
slaughter cattle is necessary because studies have shown that captive 
supplies have a negative effect on acquisition price, which could 
impact the number of head slaughtered. Additionally, captive supplies 
may directly impact trade and confound interpretation of binary 
variables (such as COOL) in econometric models.
COOL Did Not Significantly Affect Imports of Feeder Cattle
    Because feeder cattle are especially responsive to changes in 
weather, economic conditions and lifecycle variability, numerical 
comparisons of imports of feeder cattle is very sensitive to the time 
period chosen. In the 3 years prior to full implementation of COOL, an 
average of 10,416 feeder cattle were imported monthly to the U.S. Since 
that time, the number has fallen to 7,456 feeder cattle imported per 
month. Yet, the base for comparison paints a misleading picture. The 
average number of imports over 1990 to 2003 was 7,047. Using a similar 
model to Sumner and Pouliot, Dr. Taylor found no significant impact of 
COOL on either Canadian or Mexican feeder cattle imports. Over the 
period from 2013 to 2014, U.S. imports of Canadian feeder cattle are 
the highest they have been in 20 years, with the exception of 2001 and 
2002 when Alberta suffered an extreme drought, causing a spike in U.S. 
imports.
Conclusion
    The robust analysis conducted by Dr. Taylor demonstrates that 
Canada and Mexico's argument of restricted market access to the U.S. 
market as a result of COOL is simply not true. The importation of 
cattle from other markets is subject to a number of other variables 
that are independent of COOL. COOL has not had a negative impact on the 
Canadian cattle industry. This study is extremely important when 
assessing the retaliation claims made by Canada and Mexico. If Canada 
and Mexico cannot prove damages, they will not be authorized to 
retaliate.
                               Appendix A

      Consumers Overwhelmingly Support Country-of-Origin Labeling 2
------------------------------------------------------------------------
     Poll              Year             Question            Response
------------------------------------------------------------------------
Fresh Trends                 2002  Percent who feel                  86%
                                    that fresh
                                    produce items,
                                    packages or
                                    displays should
                                    be labeled to
                                    identify country-
                                    of-origin
\2\ Compiled
 by Consumer
 Federation of
 America.
National                     2004  Do you think food             82% Yes
 Farmers Union                      should be labeled
                                    with country-of-
                                    origin
                                    information?
Public Citizen               2005  Do you favor or             85% Favor
                                    oppose requiring
                                    the meat,
                                    seafood, produce
                                    and grocery
                                    industries to
                                    include on food
                                    labels the name
                                    of the country
                                    where the food is
                                    grown or
                                    produced?
Food & Water           March 2007  Should the food          82% Required
 Watch                              industry be
                                    required to
                                    provide [country-
                                    of-origin]
                                    information, or
                                    should the food
                                    industry be
                                    allowed to decide
                                    on their own?
Consumers               July 2007  Imported foods              92% Agree
 Union                              should be labeled
                                    by the country-of-
                                    origin.
Zogby                 August 2007  Consumers have a            94% Agree
                                    right to know the
                                    country-of-origin
                                    of the foods they
                                    purchase.
Consumers           November 2008  Country-of-origin           95% Agree
 Union                              labeling for
                                    products should
                                    always be
                                    available at
                                    point of
                                    purchase.
Consumers            October 2010  Consumers would             93% Agree
 Union                              prefer to have a
                                    country-of-origin
                                    label on the meat
                                    that they buy.
Consumer                 May 2013  Food sellers                90% Agree
 Federation of                      should be
 America                            required to
                                    indicate on the
                                    package label the
                                    country-of-origin
                                    of fresh meat
                                    they sell.
                                   Food sellers                87% Agree
                                    should be
                                    required to
                                    indicate on the
                                    package label the
                                    country or
                                    countries in
                                    which animals
                                    were born, raised
                                    and processed.
------------------------------------------------------------------------

                              [Appendix B]
Dr. Robert Taylor's Powerpoint Presentation on Impacts of COOL on 
        Cattle Trade
        
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]       
        
                               Appendix C
Preliminary Estimates of the Impacts of U.S. Country-of-Origin Labeling 
        (COOL) on Cattle Trade
C. Robert Taylor
January 13, 2015
Summary
    The United States Mandatory Country-of-Origin Labeling (COOL) 
regime has not impaired cattle export market access to the United 
States. In 2008, the United States enacted and implemented COOL as part 
of the 2008 Farm Bill to ensure consumers could know the country-of-
origin of many meat, fruit, vegetable and nut products that they 
purchase. This longitudinal multivariate econometric analysis found 
that COOL did not directly cause the declines in livestock exports to 
the United States, which largely coincided with a substantial economic 
downturn that sapped demand for more expensive meat products.
    In 2009, Canada and Mexico challenged the COOL provisions related 
to muscle cuts of beef and pork as an alleged barrier to trade at the 
World Trade Organization for purportedly compromising their export 
opportunities and market access to the United States for live cattle 
and hogs. According to these countries, the cost of implementing COOL 
discouraged U.S. meatpacking and processing companies from purchasing 
livestock of non-U.S. origin and, as a result, reduced the prices of 
these livestock exports. In response to the WTO dispute, University of 
California-Davis professor Daniel Sumner and, in earlier submissions, 
with Iowa State University professor Sebastien Pouliot provided 
analysis bolstering these contentions (referred collectively as SP).
    This study uses more robust data sources to assess the impact of 
COOL on market access and found that COOL has not had a significant 
negative effect on the price paid for imported slaughter cattle 
relative to comparable domestic cattle, COOL has not had a 
statistically significant negative effect on imports of feeder cattle 
relative to U.S. feeder cattle placements, and COOL has not had a 
negative impact on imported cattle for immediate slaughter.
    This analysis uses the same metrics of cattle exports' market 
access as the SP analyses (including the difference between Canadian 
and U.S. cattle prices; the share of imported cattle processed in U.S. 
slaughterhouses; the share of Canadian feeder cattle placed on U.S. 
feedlots).\3\ Each of these indicators was analyzed qualitatively and 
econometrically with weekly Mandatory Price Reporting (MPR) as well as 
monthly trade statistics. It also addresses several problems with 
omitted variable bias in the SP analysis, especially the failure to 
account for comparable cattle purchase arrangement techniques 
(negotiated purchases, captive supplies and packer-owned cattle) and 
comparing cattle of similar grades. The study uses data from the U.S. 
Department of Agriculture (USDA) for Mandatory Price Reporting (MPR) 
weekly data (from September 2005 to November 2014), USDA monthly data 
(1995 to 2014), USDA/U.S. Census Bureau trade data (1995 to 2014), 
monthly CanFax data (of limited availability) and USDA weekly data on 
Canadian feeder cattle prices (2005 to 2014).
---------------------------------------------------------------------------
    \3\ The three factors in the SP analyses are: (a) the price basis, 
defined to be the price received for imported cattle minus the price of 
like cattle of domestic origin, (b) the ratio of imported cattle 
slaughtered in the U.S. to cattle of domestic origin, and (c) the ratio 
of imported feeder cattle to U.S. placements of feeder cattle in 
domestic feedlots.
---------------------------------------------------------------------------
    Fed Cattle Price Basis Declined after COOL Went Into Effect: COOL 
did not increase the price basis for imported slaughter cattle 
according to a more thorough analysis of MPR data; in fact, the price 
basis is substantially lower in the 6 years since implementation of 
COOL than it was the preceding 4 years by class, grade, and purchase 
arrangement.
    COOL Did Not Negatively Impact Imports of Slaughter Cattle: 
Qualitative and econometric analysis of MPR and monthly trade and price 
data cast considerable doubt on assertions that COOL negatively 
affected imports of slaughter cattle. Econometric results are sensitive 
to model specification, estimation technique, and time period. The SP 
analyses are subject to omitted variable bias, in part, because it did 
not recognize the confounding effects of domestic and imported captive 
supply of slaughter cattle, or macroeconomic and beef demand 
uncertainty during the time period when COOL was being revised and 
implemented.
    COOL Did Not Significantly Affect Imports of Feeder Cattle: Using a 
comparable model to the SP model specification estimated with USDA 
monthly data on imports of 400-700 lb cattle did not show COOL having a 
significant negative effect of imports of feeder cattle from either 
Canada or Mexico relative to placements in U.S. feedlots.
    The weight of credible economic and qualitative evidence 
demonstrates that COOL has had no demonstrable impact on the Canadian 
or Mexican cattle industries. Moreover, the analysis did not find that 
COOL resulted in substantial costs to beef packers, which would have 
been seen in lower reported prices. Finally, the robustness of the 
study provides more conclusive evidence that the SP analysis on behalf 
of the Canadian livestock and packing industry reached erroneous 
conclusions due to omitted variable and model specification 
limitations, and to disregard of the packers' own transaction data as 
reported under MPR.
Introduction
    American consumers overwhelmingly support Country-of-Origin 
labeling (COOL) to ensure that they know the source of their food. 
Farmers want to be able to differentiate their products in an 
increasingly international marketplace. This widespread support led to 
the enactment and implementation of Mandatory Country-of-Origin 
Labeling in the 2008 Farm Bill.\4\
---------------------------------------------------------------------------
    \4\ A series of legal and political difficulties have bedeviled 
implementation of Country-of-Origin Labeling (COOL) of beef and 
selected other food products since U.S. Congress mandated labeling in 
the Farm Security Act of 2002 then revised in the Food, Conservation, 
and Energy Act of 2008.
---------------------------------------------------------------------------
    Canada and Mexico immediately challenged COOL at the World Trade 
Organization (WTO) as a barrier to trade and the WTO dispute has 
continued since late 2008. In 2013, the United States strengthened the 
consumer disclosure on COOL labels to comply with the original WTO 
dispute resolution report. It is worth noting that the WTO has 
consistently ruled in favor of the legitimacy of the goal of COOL 
labeling and that COOL labels serve their intended purpose of informing 
U.S. consumers.
    Canada and Mexico have contended that the COOL measures (as 
originally implemented and as strengthened in 2013) unfairly 
discriminated against livestock imports and gave an advantage to 
domestic livestock producers and that the compliance costs of COOL 
effectively create a barrier to export market access (in both volume 
and price of exported livestock). The Canadian Government continues to 
allege that the COOL label itself has reduced livestock export market 
access to the United States by $1.4 billion annually.\5\
---------------------------------------------------------------------------
    \5\ See Tomson, Bill. ``Canada's estimate of COOL damages: $1.4B 
per year.'' Politico. December 24, 2014.
---------------------------------------------------------------------------
    Key considerations in determination of whether COOL negatively 
affected Canada and Mexico's cattle industry are: (a) the price basis, 
defined to be the price received for imported cattle minus the price of 
like cattle of domestic origin, (b) the ratio of imported cattle 
slaughtered in the United States to cattle of domestic origin, and (c) 
the ratio of imported feeder cattle to U.S. placements of feeder cattle 
in domestic feedlots. This report addresses each of these economic 
indicators with a more thorough econometric analysis and finds that 
COOL has not impaired livestock market access to the United States.
    In a consulting report done for the Canadian Cattlemen's 
Association (CCA) and the Canadian government, with Canadian cattle 
market data provided by CCA, Sumner and Pouliot and Sumner (SP) found 
``significant evidence of differential impacts of COOL through widening 
of the price bases and a decline in ratios of imports to total domestic 
use for both fed and feeder cattle.'' Veracity of the PS report cannot 
be determined because much of the Canadian data on which their 
econometric analyses were based is not publicly available, and public 
use of the data is controlled by CCA.\6\ This study and subsequent 
studies by Sumner (collectively referred to as SP throughout) that 
relied on proprietary industry-controlled data were the basis for 
Canada's WTO challenge to the U.S. COOL measure. Not only is the data 
inaccessible but it was supplied to the authors by an industry group 
that is adamantly opposed to COOL and is a plaintiff in a COOL lawsuit 
against the USDA.\7\
---------------------------------------------------------------------------
    \6\ http://www.canfax.ca/Faqs.aspx.
    \7\ See United States Court of Appeals for the District of Columbia 
Circuit. No. 13-5281. American Meat Institute, et al. v. USDA, et al.
---------------------------------------------------------------------------
    Moreover, SP did not mention, let alone utilize, Mandatory Price 
Reporting (MPR) data as reported by U.S. beef packers to the 
Agricultural Marketing Service (AMS) of USDA, instead relying largely 
on data provided to them by CCA. MPR data are highly detailed, 
including origin, import or domestic, of cattle slaughtered in the U.S. 
and is thus a statistically and economically rich and robust data set 
for analyzing COOL. The time period covered by MPR data covers about 4 
years prior to the implementation of the interim final COOL rule on 
September 29, 2008, and 6 years since, thus spanning the period in 
which COOL was defined, redefined and implemented and came into full 
force on March 16, 2009.
    Since the MPR information comes directly from the beef packers, the 
MPR price and basis trends reflect actual operational slaughter costs 
and can definitively shed light on the beef packers' political rhetoric 
and repeated public assertions about the costs of COOL to the U.S. 
packing industry.
The Difference between Canadian and U.S. Slaughter Cattle Prices (the 
        Basis) Narrowed After COOL Implementation
    The detailed weekly MPR data show that the price basis was 
generally lower, not higher, by class, grade, and purchase arrangement 
after COOL was implemented in late 2008, compared to the 4 previous 
years. The use of the beef packers' own MPR data belie the claims that 
the cost of COOL compliance would create substantial segregation 
costs.\8\ If these claims were true, the price basis would increase 
post-COOL compared to pre-COOL. Instead, the price differential between 
imported and domestic steers narrowed significantly since COOL went 
into effect after adjusting for inflation and expressed in U.S. 
dollars.
---------------------------------------------------------------------------
    \8\ http://www.meatami.com/ht/a/GetDocumentAction/i/87821.
---------------------------------------------------------------------------
    Table 1 shows the basis by class, purchase arrangement, and grade 
before and after COOL, computed as paired \9\ averages. As can be seen, 
the basis declined for most of these categories after COOL was 
implemented. Categories in which the basis widened accounted for less 
than 15% of recorded import slaughter. Adjusted for inflation, the 
post-COOL basis changes shown in Table 1 would be even smaller compared 
to pre-COOL averages.
---------------------------------------------------------------------------
    \9\ Paired comparison means that averages were computed only for 
weeks in which there was a domestic and an import transaction recorded 
in a category. There were many weeks in which no negotiated cash 
transactions were reported for imported slaughter cattle.

  Table 1. Price Basis by Purchase Arrangement, Grade and Class, Paired
Comparisons Before and After Full Implementation of COOL, MPR Data, U.S.
                       Dollars/cwt Dressed Weight
------------------------------------------------------------------------
                                         Before COOL       After COOL
               Purchase               (weeks ending 9/  (weeks ending 11/
  Class      Arrangement      Grade    5/2005- 10/29/     6/2008- 1/12/
                                            2008)             2015)
------------------------------------------------------------------------
Steer      Formula Net      0-35%               ^$2.49             $0.23
                             Choice
                            35-65%              ^$3.26            ^$2.14
                             Choice
                            65-80%              ^$4.60            ^$3.78
                             Choice
                            Over 80%            ^$7.26            ^$6.90
                             Choice
           Forward          0-35%               ^$2.91            ^$2.47
            Contract Net     Choice
                            35-65%              ^$3.96            ^$3.30
                             Choice
                            65-80%              ^$4.63            ^$3.80
                             Choice
                            Over 80%            ^$5.47            ^$3.01
                             Choice
           Negotiated Grid  0-35%                $1.76            ^$1.43
            Net              Choice
                            35-65%               $0.57            ^$1.03
                             Choice
                            65-80%               $0.14            ^$1.67
                             Choice
                            Over 80%            ^$1.54            ^$2.71
                             Choice
------------------------------------------------------------------------
Heifer     Formula Net      0-35%               ^$1.59            ^$0.03
                             Choice
                            35-65%              ^$2.86            ^$1.70
                             Choice
                            65-80%              ^$4.51            ^$2.81
                             Choice
                            Over 80%            ^$6.89            ^$4.84
                             Choice
           Forward          0-35%               ^$4.91            ^$1.25
            Contract Net     Choice
                            35-65%              ^$1.65            ^$4.02
                             Choice
                            65-80%              ^$2.53            ^$5.20
                             Choice
                            Over 80%            ^$4.07            ^$2.27
                             Choice
           Negotiated Grid  0-35%               ^$4.04             $6.25
            Net              Choice
                            35-65%              ^$0.25            ^$0.43
                             Choice
                            65-80%               $0.41            ^$2.47
                             Choice
                            Over 80%             $1.82            ^$2.39
                             Choice
------------------------------------------------------------------------
Mixed      Formula Net      0-35%               ^$2.74             $0.97
 Steer &                     Choice
 Heifer
                            35-65%              ^$2.06            ^$2.85
                             Choice
                            65-80%              ^$3.32            ^$2.92
                             Choice
                            Over 80%            ^$5.06            ^$4.85
                             Choice
           Forward          0-35%               ^$7.04             $3.78
            Contract Net     Choice
                            35-65%              ^$1.58             $0.49
                             Choice
                            65-80%              ^$0.48             $0.79
                             Choice
                            Over 80%            ^$2.81             $1.47
                             Choice
           Negotiated Grid  0-35%                $1.72             $0.55
            Net              Choice
                            35-65%               $1.70            ^$0.04
                             Choice
                            65-80%               $2.37            ^$1.14
                             Choice
                            Over 80%             $1.72            ^$1.60
                             Choice
------------------------------------------------------------------------

    This analysis includes the important purchasing arrangement data 
element that has a significant impact on cattle prices. The omission of 
purchasing arrangements as a contributing factor to the basis yields 
analytical and model bias that incorrectly finds that COOL has 
negatively impacted the basis.
    For example, the SP study concluded that ``after controlling for 
other factors that affect the basis, COOL widened the basis by 30 
percent (Model 1) and 90 percent (Model 2).'' Another study done for 
the packers by Informa Economics, Inc. (previously Sparks Commodities) 
claimed a cost of $15-$18 per head for USDA's initial proposal \10\ and 
a cost to packers and processors of $10-$18 per head under the final 
rule. Informa claimed that under the final rule, ``. . . COOL costs . . 
. (would) have a burdensome and differential cost impact is at the 
packer/processor level.'' \11\ CCA claims even larger impacts, ``The 
combined impact of the lower prices and the increased cost of 
transporting livestock greater distances resulted in a loss of about 
$90 per animal.'' \12\
---------------------------------------------------------------------------
    \10\ Comments on Guidelines for Voluntary Country-of-Origin 
Labeling Program, SparksCompanies, Inc., April 2003.
    \11\ Informa Economics, Update of Cost Assessments for Country-of-
Origin Labeling--Beef & Pork (2009), June 2010.
    \12\ http://www.cattle.ca/market-access/wto-disputes/.
---------------------------------------------------------------------------
    The SP analyses draw conclusions from a simple econometric analysis 
that is data dependent, including proprietary data and omitting key 
variables. But an estimation of the econometric model specification 
used by SP with MPR weekly average price data rather than the CCA data 
shows that COOL did not have a significant negative effect on the price 
basis. This analysis uses the packers' own MPR transaction information 
which demonstrates that a more thorough model specification and data 
set reveals that COOL did not increase the basis between domestic and 
imported slaughter cattle prices, instead the price differential 
declined after COOL went into effect.
    Basis comparisons must go beyond comparison of average basis, 
graphically or numerically or econometrically, and distinguish between 
class, grade and purchase arrangement to avoid invalid conclusions. 
Forward contracts dominate import slaughter cattle acquisitions, but 
not domestic acquisitions. There have been extended periods when 
pricing under forward contracts were both better than, and worse than, 
average pricing under formula arrangements or the residual cash market.
    Figure 1 shows the weekly price received for imported and domestic 
slaughter steers and heifers averaged over all grades and purchase 
arrangements.
Fig. 1. Average Prices Paid for Slaughter Steers & Heifers of Imported 
        & Domestic Origin, MPR Data
        
        
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Domestic and imported prices generally moved together, with a small 
basis, except for notable exceptions in 2014 and 2011 when import price 
was well below domestic price, and in late 2008 and early 2009 when 
import price was well above domestic price for an extended period 
(Figure 1). These differences are not due to COOL but to different 
purchase arrangements dominating domestic compared to import slaughter 
cattle acquisition. Forward contracts accounted for 54% of imports but 
only 8% of domestic slaughter over the past 10 years (Figure 2).
Fig. 2. Slaughter Steers and Heifers Acquired under Forward Contracts 
        as a % of Total Slaughter by Origin, MPR Data
        
        
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Formula (marketing agreements) and negotiated acquisitions dominate 
domestic but not import slaughter. Most marketing agreements have a 
base price tied to a negotiated price, while forward contracts are 
generally tied to futures market prices for cattle and/or exchange 
rates. Negotiated prices thus dominate domestic acquisitions, while 
futures prices dominate import acquisitions. When cash and futures 
market prices diverge, as they do from time-to-time, the average prices 
for imported slaughter cattle can diverge from the average domestic 
price because of the purchase arrangement between packer and feeder.
    Figure 3 compares the difference between average prices received 
under forward contracts compared to formula arrangements for fed cattle 
of domestic and import origin. As can be seen, the differences are 
about the same for imported and domestic slaughter cattle. Thus, a 
simple comparison of price basis averaged over all purchase 
arrangements (see Figure 1) may give the illusion of a negative effect 
of COOL on the price basis when, in fact, the differences are affected 
by price fluctuations in futures markets (forward contracts) relative 
to the residual cash market \13\ and not due to COOL.
---------------------------------------------------------------------------
    \13\ The base price in most marketing agreements is tied in one-way 
or another to price in the residual cash market for slaughter cattle.
---------------------------------------------------------------------------
Fig. 3. Price Differences Between Forward Contract and Marketing 
        Agreement Cattle, Imports Compared to Domestic, MPR Data
        
        
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Quality differences may also be important in explaining changes in 
cattle trade over time. MPR data reveal that that grade of domestic 
slaughter steers and heifers has trended upward faster than the grade 
of imported cattle has improved. Figure 4 shows the percent of steers 
and heifers grading at least 65% Choice. Those of domestic origin in 
this grade category have approximately doubled from 30% to 60%, while 
those of foreign origin have been quite variable but not trending as 
strongly as those of domestic origin. To the extent that packers desire 
to acquire high quality animals, they no longer need to rely on 
imported cattle to the extent that they did in the era prior to 
implementation of COOL.
Fig. 4. Percentage of Steer & Heifer Slaughter Grading at Least 65% 
        Choice, All Purchase Arrangements, MPR Data
       
       
       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Thus there is no legitimate empirical evidence, based on actual 
transaction data as reported by the packers, to support claims that 
implementation of COOL created substantial segregation costs and caused 
the price of imported slaughter cattle to decline relative to the price 
of cattle of domestic origin.
COOL Did Not Lower the Ratio of Imported Slaughter Cattle to Domestic 
        Slaughter
    Statistical, econometric and qualitative analyses do not provide 
strong support to the contention that COOL reduced slaughter of 
imported cattle. Econometric results are mixed, depending on data set, 
observation period, and included variables. The more comprehensive data 
sets analyzed here demonstrate that COOL itself had little if any 
impact on the share of imported cattle slaughtered by U.S. beef 
packers.
    Figure 5 shows monthly U.S. and Canadian cattle trade for the past 
20 years, while Figure 6 shows slaughter of imported cattle, primarily 
Canadian, relative to slaughter of steers and heifers of domestic 
origin, as identified in the weekly MPR data.
Fig. 5. U.S. Imports of Canadian Cattle, FAS and USDA Data, Monthly

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Fig. 6. Imported Slaughter Steers and Heifers as a Percentage of 
        Domestic Slaughter, MPR Data
        
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    An SP-like model estimated with MPR data has a significant negative 
coefficient on the COOL binary variable. However, addition of weekly 
captive supply (as a % of total slaughter) negates this result. Models 
estimated with monthly data on the ratio of imports of Canadian 
slaughter cattle over 700 lbs to total U.S. slaughter are mixed, 
depending on observation period. Based on monthly data since Sept. 
2005, beginning of the observation period used by SP, results show a 
significant negative coefficient on the COOL binary variable. However, 
estimating a similar model with observations going back to 1995 and 
allowing for the ban due to BSE, gives insignificant results.
    In statistical terms, the SP finding that COOL negatively impacted 
imports of slaughter cattle is not a ``robust'' result because of 
confounded results and omitted variable bias.
    Aside from econometric games, numerical and visual comparison 
(Figures 5 and 6) of pre and post-COOL imports do not provide 
compelling evidence to support the contention that COOL has or will 
destroy the Canadian cattle industry. For the past several decades, 
about \4/5\ of Canadian cattle have been slaughtered at Canadian beef 
packers and that has not changed since COOL went into effect. Nor has 
the share of Canadian slaughter cattle processed at U.S. plants 
declined significantly. The total Canadian beef cattle exports to the 
United States has not trended downward, particularly considering the 
buildup and historically high Canadian cattle herd before the BSE ban 
\14\ relative to the declining U.S. cattle herd during that period.\15\
---------------------------------------------------------------------------
    \14\ Slide 5 at http://canfax.ca/CFX_forum_2014/pdf/
CFX2014_speaker_Perillat.pdf.
    \15\ http://www.beefusa.org/CMDocs/BeefUSA/Resources/Statistics/
annualcattlenumbersand
beefproduction774.pdf
---------------------------------------------------------------------------
    Annual data on Canadian cattle slaughter reveal that the ratio of 
exports of slaughter cattle to the U.S. to slaughter in Canadian plants 
was 21.2% pre-COOL and 20.5% post-COOL, an insignificant decline. 
Monthly trade data show that imports of Canadian cattle over 700 lbs 
for slaughter, which includes some cattle put in U.S. feedlots for 
finishing as well as cattle that go directly to slaughter, fell by a 
lesser amount, from 3.0% of U.S. slaughter to 2.7%.
    MPR data reveal that the ratio of import to domestic steer and 
heifer slaughter was 2.4% pre-COOL and 1.7% after COOL was 
implemented.\16\ However, it is noteworthy that this was not a slow 
downward trend but a shift that occurred in early 2008, a year before 
COOL was fully implemented. This shift may well have been triggered not 
by impending COOL implementation, but by macro economic conditions 
translating into beef and cattle demand uncertainty as well as to the 
Canadian dollar and the Peso weakening by 20-30% relative to the U.S. 
dollar during the developing world financial crisis.
---------------------------------------------------------------------------
    \16\ Rather than use the MPR data on the ratio of slaughter cattle 
imports to domestic slaughter, SP constructed a data series for fed 
cattle slaughter based, in part, on their ``prediction'' of feeder 
imports. Since they did not report their constructed data, or even mean 
values, the validity and relevance of their analysis is unclear. Figure 
3 in their report apparently charts their constructed data for the fed 
cattle import ratio. The vertical axis in this chart is not labeled, 
but assuming that the chart represents percentages, visual inspection 
suggests and average of 2-4%. This, however, is higher than the actual 
ratio from MPR data, which has an average of 2.0% for the same time 
period.
---------------------------------------------------------------------------
    Figure 7 shows weekly exchange rates for the Canadian dollar and 
Mexican Peso for the past 10 years. Vertical lines in the chart bracket 
the period during which interim and final COOL were being implemented. 
As can be seen, both the Canadian dollar and the Mexican Peso weakened 
dramatically during this period. Both currencies were at their weakest 
when COOL went into full force in mid-March of 2009.
Fig. 7. Canadian Dollar and Mexican Peso Exchange Rates per U.S. Dollar


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Due to these substantial currency fluctuations, comparison of 
imported cattle prices in other currencies to domestic prices in U.S. 
dollars can be deceiving. Moreover, econometric models with price basis 
in Canadian dollars and the (change in the) currency exchange rate as a 
potential explanatory variable, as done by SP, may not fully account 
for currency fluctuations and are inappropriate to the extent that 
captive supply contracts with Canadian feeders are priced in U.S. 
dollars.
    The contention that imports will make up a smaller share of 
slaughter capacity because of COOL also suffers from a logical fallacy 
that is revealed by more thorough analysis. SP's theoretical argument 
is that COOL reduces the U.S. domestic demand for imported slaughter 
cattle, thus explaining the significant negative coefficient in their 
econometric model of the import ratio. The corollary to their theory, 
which they did not consider, is that the demand for slaughter cattle of 
domestic origin should increase. Thus, one would expect that a COOL 
binary variable included in an SP-like econometric model of U.S. cattle 
slaughter would have a significant positive coefficient. But this is 
not the case, as a SP-like reduced form model with U.S. slaughter of 
fed cattle as the dependent variable, estimated with MPR data, has a 
significant negative sign, just like it does in the model estimated 
with the import ratio as the dependent variable and the same set of 
independent variables. This inconsistent statistical finding casts 
doubt on SP's attribution of a significant negative coefficient on 
their COOL binary variable to COOL, per se. The estimated coefficient 
may be confounded by a host of variables, omitted or included, and thus 
not represent any causal net effect of COOL.
    Additionally, the use of various marketing arrangements by powerful 
buyers in the beef packing industry affects cattle prices. Changes in 
market power confound both statistical and qualitative analyses of 
COOL. SP assert that ``. . . allowing for market power by U.S. buyers 
would not impact the results qualitatively.'' At best, this assertion 
is true only if market power, by U.S. or Canadian buyers, did not 
change. To the extent that market power changed, and there are 
compelling reasons supporting a change in buyer power, statistical 
results based on the SP model specification are subject to omitted 
variable bias.
    Domestic and foreign captive supplies of slaughter cattle are 
highly plausible variables to include in a model intended to estimate 
effects of COOL for two reasons. First, study after study has shown 
that captive supplies have a negative effect on acquisition price and 
may thus indirectly influence head slaughtered.\17\ Second, captive 
supplies commit packers to future slaughter of cattle and may thus 
directly affect trade.\18\
---------------------------------------------------------------------------
    \17\ Some academic studies have argued that the strong negative 
relationship between captive supplies is correlation, not causation. 
However, public statements made by the CEO of IBP in 1988 and 1994, 
that captive supplies gave IBP ``leverage'' in the residual cash 
market, and sworn testimony by the Head buyer for IBP/Tyson strongly 
supports causality. See, Taylor, C.R., ``Buyer Power Litigation in 
Agriculture: Pickett v. Tyson Fresh Meats, Inc.,'' Antitrust Bulletin, 
Vol. 53, No. 2, Summer 2008: 455-474.
    \18\ As a hypothetical illustration of the potential market and 
trade distortion of captive supply, suppose that a large domestic 
packer has a blanket marketing agreement with a large domestic captive 
feeder, normally acquiring 100 million pounds weekly. The packer also 
acquires imported slaughter cattle on the cash market, normally 
accounting for 10 million pounds weekly. The marketing agreement 
extends indefinitely and guarantees the feeder a buyer, but not a 
price. Contracts between packers and retailers are not publicly 
transparent, but are known to dominate the industry. Suppose that the 
packer has such a long-term contract with a retailer at a stated price, 
but volume is not specified exactly. The packer normally provides 110 
million pounds to the retailer. What happens if demand softens to 100 
million pounds? Because of the captive arrangement, the packer must 
abandon the import market and supply the retailer with cattle only from 
the large captive domestic feeder. Without these captive arrangements, 
we would expect the packer to acquire cattle from domestic as well as 
foreign feeders, say 95 million pounds domestically and 5 million 
pounds from imported suppliers. Thus, captive arrangements can distort 
trade and confound interpretation of binary variables in econometric 
models that do not account for captive supplies, domestic and imported.
---------------------------------------------------------------------------
    Augmenting the SP model specification with captive supply variables 
negates the negative significance of the COOL binary variable and shows 
that import captive supply (as a % of total imports) has a highly 
significant POSITIVE effect on the import head ratio while domestic 
captive supply (as a % of total domestic slaughter) has a highly 
significant NEGATIVE effect on the import head ratio.
    MPR data show that captive supplies of imported slaughter cattle, 
as a percent of total imports, were near 100% through 2007. Beginning 
in early 2008, before COOL was implemented, imported captive supplies 
dropped to an average of about 75% but fluctuated from 20% to 100% 
through 2012, returning to about 100% in early 2013 (Figure 8). The 
drop in imported captive supplies occurred months before interim COOL 
was implemented and almost a year before mandatory COOL and may have 
been triggered by packers' uncertainty over beef demand during 
turbulent economic times that occurred along with implementation of 
COOL.\19\ Although domestic as well as imported captive supplies vary 
considerably week to week, a strong upward trend is apparent in 
domestic captive supply from about 35% 10 years ago to 70% now. 
However, the trend in domestic captive supply (as a percent) dropped 
off somewhat during early 2008 at the same time that import captive 
supply fell sharply.
---------------------------------------------------------------------------
    \19\ Lack of consistent time-series data on plausible macro 
economic variables to include in a model for import or domestic 
slaughter, particularly proxies for ``uncertainty,'' unfortunately 
limits how far one can go with statistical and econometric analyses.
---------------------------------------------------------------------------
Fig. 8. Captive Supply Percent of Canadian Imports of Slaughter Steers 
        & Heifers, MPR Data
        
        
        
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Expectations that beef demand would be lower due to macro economic 
events during the period when COOL was being implemented may have 
triggered packers' cutbacks in aggregate captive commitments.\20\
---------------------------------------------------------------------------
    \20\ Economic theory suggests that beef packers would not fully 
integrate vertically by ownership or through captive arrangements in 
the face of demand uncertainty. We can expect them to integrate for 
demand that they expect to occur with high probability, but not 
necessarily to integrate for demand that may be highly uncertain. If a 
packer is fully integrated vertically and the uncertain demand is not 
realized, the packer is nevertheless legally committed to slaughter the 
captive animals, thus resulting in financial losses to the packer. With 
partial vertical integration, the packer can meet contracted retail 
commitments in the presence of low demand, but walk away from the cash 
market for slaughter animals. Thus we can expect packers to reduce 
captive commitments during periods of relatively high demand 
uncertainty to the extent permitted by contract terms. Such a reduction 
is expected to occur not instantly, but over a period of weeks or 
months.
---------------------------------------------------------------------------
    Public data are not available on the extent of captive supplies of 
Canadian cattle that are slaughtered in Canada. These arrangements for 
slaughter in Canada may also affect trade and confound interpretation 
of coefficients in a SP-like econometric model.
    A detailed analysis in 2008 by the Canadian National Farmers Union 
(CNFU) points to captive supply problems on both sides of the border, 
concluding that ``. . . dramatically increased levels of captive supply 
in both Canada and the U.S. have had price-depressing effects in both 
countries.'' How fluctuations in Canadian and U.S. captive supply 
arrangements affect price and trade cannot be determined without 
reliable data. One study reports that captive supplies in Alberta 
accounted for 50-60% of slaughter in Alberta in 2006,\21\ while more 
recent news reports mention that Canadian captive supply is ``large.'' 
\22\ Canadian captive supply data are maintained by the CCA based on 
packers voluntary reporting, but such data are not publicly available.
---------------------------------------------------------------------------
    \21\ http://ageconsearch.umn.edu/bitstream/46435/2/ward28-
1%5B1%5D.pdf.
    \22\  http://www.cattlenetwork.com/cattle-news/Canada-cattle-
report-Packers-cushioned-by-large-captive-supplies-168180546.html.
---------------------------------------------------------------------------
    Tyson's sale of their Canadian Lakeside cattle feeding and 
slaughtering operations also confound interpretation of econometric 
results.\23\ Their exit reduced the number of meaningful buyers in 
Canada from three to two, which may have also affected prices 
(including the Alberta-Nebraska feeder price differential) and trade. 
The shift from three to two buyers is well beyond levels of market 
concentration that raise antitrust concern.
---------------------------------------------------------------------------
    \23\ Tyson claims that they sold their Canadian cattle business 
because of COOL, but this appears to be pretext. Instead, Tyson appears 
to have shed its Canadian subsidiaries because of business 
considerations. Statements in Tyson's SEC filings leading up to their 
sale indicate financial losses on their Lakeside packing and cattle 
feeding operations. U.S. cattle feeders suffered huge losses beginning 
in late 2007 and extending through 2009, so Tyson likely also suffered 
huge losses on their Lakeside feedlots that accounted for about 20% of 
their Canadian slaughter. More recently, Tyson's motive in announcing 
(October of 2013) that they would no longer buy Canadian slaughter 
cattle but would continue to buy Canadian born animals sent to U.S. 
feedlots is unclear.
---------------------------------------------------------------------------
    The 2008 CNFU report raises concerns about exertion of increased 
market power with Tyson's sale to an existing Canadian packer.
    Fundamental ``generational'' change is also occurring in both the 
U.S. and Canadian cattle industry, change that cannot be accounted for 
in econometric models without meaningful and consistent time series 
data on quite complex socioeconomic factors responsible for such 
changes.
    In summary, econometric and qualitative analyses do not strongly 
support the contention that COOL has negatively impacted imported 
slaughter cattle relative to slaughter of cattle of domestic origin. At 
best, the econometric evidence is weak and lacks robustness.
COOL Did Not Affect the Ratio of Imported Feeder Cattle to Domestic 
        Feedlot Placements
    COOL did not have a significant negative effect on either Canadian 
or Mexican feeder cattle imports. Feeder cattle placements are 
especially responsive to weather, economic and cattle cycle 
variability. Numerical comparison of imports of feeder cattle from 
Canada is sensitive to the time period chosen. A severe drought in 
Alberta and other parts of Canada that spanned 2 years, 2001-02, 
resulted in a spike of feeder cattle moving to the U.S. During 
September-November of 2002, Canada exported over eight times more 
feeder cattle than in the same months in 2001, and over 16 times more 
than in 2000. In the 3 years prior to full implementation of COOL, an 
average of 10,416 feeders were imported monthly, which fell to 7,456 
feeders since. However, the average over 1990-2003 was 7,047, slightly 
lower than post-COOL. Imports of feeder cattle from Mexico have 
continued to rise (Figure 9).
Fig. 9. U.S. Imports of Feeder Cattle from Canada and Mexico, 400-700 
        lbs., FAS and USDA Monthly Data
        
        
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    SP's econometric analysis did not show a significant negative 
effect of COOL on the feeder cattle price basis. A similar model 
estimated with USDA data shown in Figure 10 did not show a significant 
negative effect of COOL on the feeder cattle price basis. Exchange 
rates, transportation costs, and seasonality econometrically explain 
most of the variation in the feeder cattle price basis.
Fig. 10. U.S. Price Basis for Alberta Feeder Steers & Heifers Relative 
        to Nebraska Feeders, 500-600 lbs., U.S. Dollar/cwt, USDA Data
   
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    SP did report a significant negative effect of COOL in their model 
purporting to represent Canadian feeder cattle imports, however, this 
finding is compromised because their constructed data for the ratio of 
Canadian feeder cattle imports appears to include other cattle. SP's 
Figure 3 shows the feeder import ratio fluctuating between about 0.5% 
and 9.0%, averaging roughly above 2%. Yet, USDA data show the ratio of 
imported Canadian 400-700 lb cattle to U.S. feedlot placements to 
average only 0.4% over the time period used for the PS chart.
    SP-like econometric models estimated monthly USDA data with the 
dependent variable defined to the imports of 400-700 lb cattle divided 
by U.S. feedlot placements does not show a significant negative effect 
of COOL on either Canadian or Mexican feeder cattle imports. In fact, 
U.S. imports of Canadian feeder cattle in 2013-14 are the highest they 
have been in the past 20 years (Figure 9), excluding the period in 
2001-02 when extreme drought in Canada caused a spike in imports.
                              [Appendix D]

  Table 1. Price Basis by Purchase Arrangement, Grade and Class, Paired
Comparisons Before and After Full Implementation of COOL, MPR Data, U.S.
                       Dollars/cwt Dressed Weight
------------------------------------------------------------------------
                                         Before COOL       After COOL
               Purchase               (weeks ending 9/  (weeks ending 11/
  Class      Arrangement      Grade    5/2005- 10/29/     6/2008- 1/12/
                                            2008)             2015)
------------------------------------------------------------------------
Steer      Formula Net      0-35%               ^$2.49             $0.23
                             Choice
                            35-65%              ^$3.26            ^$2.14
                             Choice
                            65-80%              ^$4.60            ^$3.78
                             Choice
                            Over 80%            ^$7.26            ^$6.90
                             Choice
           Forward          0-35%               ^$2.91            ^$2.47
            Contract Net     Choice
                            35-65%              ^$3.96            ^$3.30
                             Choice
                            65-80%              ^$4.63            ^$3.80
                             Choice
                            Over 80%            ^$5.47            ^$3.01
                             Choice
           Negotiated Grid  0-35%                $1.76            ^$1.43
            Net              Choice
                            35-65%               $0.57            ^$1.03
                             Choice
                            65-80%               $0.14            ^$1.67
                             Choice
                            Over 80%            ^$1.54            ^$2.71
                             Choice
------------------------------------------------------------------------
Heifer     Formula Net      0-35%               ^$1.59            ^$0.03
                             Choice
                            35-65%              ^$2.86            ^$1.70
                             Choice
                            65-80%              ^$4.51            ^$2.81
                             Choice
                            Over 80%            ^$6.89            ^$4.84
                             Choice
           Forward          0-35%               ^$4.91            ^$1.25
            Contract Net     Choice
                            35-65%              ^$1.65            ^$4.02
                             Choice
                            65-80%              ^$2.53            ^$5.20
                             Choice
                            Over 80%            ^$4.07            ^$2.27
                             Choice
           Negotiated Grid  0-35%               ^$4.04             $6.25
            Net              Choice
                            35-65%              ^$0.25            ^$0.43
                             Choice
                            65-80%               $0.41            ^$2.47
                             Choice
                            Over 80%             $1.82            ^$2.39
                             Choice
------------------------------------------------------------------------
Mixed      Formula Net      0-35%               ^$2.74             $0.97
 Steer &                     Choice
 Heifer
                            35-65%              ^$2.06            ^$2.85
                             Choice
                            65-80%              ^$3.32            ^$2.92
                             Choice
                            Over 80%            ^$5.06            ^$4.85
                             Choice
           Forward          0-35%               ^$7.04             $3.78
            Contract Net     Choice
                            35-65%              ^$1.58             $0.49
                             Choice
                            65-80%              ^$0.48             $0.79
                             Choice
                            Over 80%            ^$2.81             $1.47
                             Choice
           Negotiated Grid  0-35%                $1.72             $0.55
            Net              Choice
                            35-65%               $1.70            ^$0.04
                             Choice
                            65-80%               $2.37            ^$1.14
                             Choice
                            Over 80%             $1.72            ^$1.60
                             Choice
------------------------------------------------------------------------


    The Chairman. Ms. Dempsey.

STATEMENT OF LINDA M. DEMPSEY, VICE PRESIDENT OF INTERNATIONAL 
                   ECONOMIC AFFAIRS, NATIONAL
         ASSOCIATION OF MANUFACTURERS, WASHINGTON, D.C.

    Ms. Dempsey. Chairman Rouzer, Members of the Subcommittee, 
thank you for the opportunity to be here on behalf of the 
National Association of Manufacturers; the nation's largest 
industrial association, representing over 14,000 manufacturers 
in every state in the country.
    Last year, U.S. manufacturing output reached a record of 
$2.1 trillion, supported over 12 million jobs, and, of course, 
relies substantially on inputs from our nation's farmers and 
agriculture producers for many of our food and beverage 
products.
    I am also appearing today as co-chair of the COOL Reform 
Coalition, along with my colleague, Mr. Wenk, from the U.S. 
Chamber.
    Let me focus on five points. First, trade and U.S. 
manufactured exports are a critical source of growth for U.S. 
manufacturing and other industries in America. U.S. 
manufactured exports reached a record level last year of $1.4 
trillion, supporting millions of jobs. That growth has been 
supported by decades of--since the creation of the World Trade 
Organization and other market-opening trade agreements under 
which the United States and other nations agree to play by a 
basic set of rules. Second, Canada and Mexico are by far the 
nation's largest export markets for our nation's manufacturers. 
Last year alone, they purchased $485 billion in manufactured 
goods from the United States. Third, the United States' 
continued failure to bring the COOL rule for meat into 
compliance with its WTO obligation is threatening substantial 
quantities of manufacturing goods exports to our two closest 
trading partners. There is wide expectation that the WTO will, 
in fact, rule again that this rule is out of compliance with 
the basic rules.
    They have been found out of compliance not just once 
already, but three times. Canada has put forth a proposed 
retaliatory list, which includes many manufactured products 
such as steel pipes, heating appliances, office furniture, and 
mattresses. Mexico has not set forth what products it would put 
on its list, but manufacturers have already witnessed firsthand 
Mexican retaliation in the trucking case, where Mexico imposed 
tariffs as high as 45 percent on many products, resulting in 
lost sales and lost jobs. Manufactured goods were listed on 
Mexico's trucking retaliation list, including office equipment 
and a wide range of home appliances. Fourth, to be successful 
globally, manufacturers needed a respected and enforced global 
trading system. The United States led the world in writing 
these rules, including the creation of the WTO in 1995, where 
binding dispute settlement was a primary U.S. objective. 
Enforcement of the rules-based trading system has already 
helped American workers, farmers, and manufacturers secure 
access to overseas markets, and grow our exports and jobs here 
in the United States. If countries including the United States 
do not live up to their obligations, the system will be 
weakened, and our businesses and our workers will face the 
penalty. Fifth, and finally, time is running out. It is 
imperative that Congress act quickly, or else put at risk very 
substantial levels, some believe billions, in U.S. exports to 
Canada and Mexico, and the industries and jobs of tens of 
thousands of workers that produce those goods.
    With the threat of retaliation looming for our nation's 
manufacturers, the NAM and the COOL Reform Coalition urge 
Congress to bring the United States back into compliance with 
its WTO obligations fully and quickly through the repeal of 
these WTO inconsistent meat labeling provisions.
    Thank you for the opportunity to testify today. I look 
forward to working with the Committee to resolve this important 
issue.
    [The prepared statement of Ms. Dempsey follows:]

Prepared Statement of Linda M. Dempsey, Vice President of International 
 Economic Affairs, National Association of Manufacturers, Washington, 
                                  D.C.
    Chairmen Rouzer, Ranking Member Costa, and Members of the 
Subcommittee on Livestock and Foreign Agriculture, thank you for the 
opportunity to testify on behalf of the National Association of 
Manufacturers.
    My name is Linda Dempsey, and I am the Vice President of 
International Economic Affairs for the National Association of 
Manufacturers (NAM). The NAM is the nation's largest industrial 
association and voice for more than 12 million women and men who make 
things in America. Manufacturing in the U.S. supports more than 17 
million jobs, and in 2014, U.S. manufacturing output reached a record 
of nearly $2.1 trillion. It is the engine that drives the U.S. economy 
by creating jobs, opportunity and prosperity. The NAM is committed to 
achieving a policy agenda that helps manufacturers grow and create 
jobs.
    I am also appearing today as co-chair of the COOL Reform 
Coalition,\1\ along with the U.S. Chamber of Commerce. Launched a year 
ago, the COOL Reform Coalition includes companies and associations from 
across the U.S. economy, including a variety of manufacturing sectors, 
that advocate for U.S. compliance with the international obligations it 
has undertaken in the World Trade Organization (WTO) agreements 
relating to the topic of this hearing.
---------------------------------------------------------------------------
    \1\ www.COOLReform.com.
---------------------------------------------------------------------------
    U.S. manufactured exports are a critical source of growth for 
manufacturing and other industries throughout all 50 states. U.S. 
manufactured goods exports reached their highest level ever last year, 
totaling $1.4 trillion, which supports millions of U.S. jobs. That 
growth has been supported over the past decades by the creation of the 
WTO and other market opening trade agreements, under which the United 
States and other nations agreed to reduce tariff and non-tariff 
barriers.
    The United States' continued failure to bring the Country-of-Origin 
Labeling (COOL) rules for muscle cuts of meat into compliance with its 
WTO obligations is threatening U.S. manufactured goods exports to our 
two largest trading partners, Canada and Mexico. The COOL rules, which 
were put in place more than 6 years ago, have already been found out of 
compliance with the WTO obligations that the United States itself 
helped create--not just once, but three times. With the threat of 
retaliation looming for our nation's manufacturers, we and the COOL 
Reform Coalition urge that Congress move quickly to eliminate these 
WTO-inconsistent provisions.
I. Background on the COOL Dispute
    The challenge before us today is not a new one. Indeed, it has been 
more than 6 years in the making, with attempts to impose COOL rules on 
muscle cuts of meat found to be out of compliance with international 
rules time and again.
    The 2002 Farm Bill, subsequently amended by the 2008 Farm Bill, 
established U.S. Mandatory COOL rules that require most retailers to 
provide country of labeling for fresh fruits and vegetables, fish, 
nuts, meat and poultry, among other products. These provisions were 
implemented through an Interim Final Rule of the U.S. Department of 
Agriculture on July 28, 2008.
    Less than 5 months later, Canada challenged the rule for muscle 
cuts of meat at the WTO, arguing that COOL has a trade-distorting 
impact by reducing the value and number of cattle and hogs shipped to 
the U.S. market. Mexico joined the complaint soon thereafter.
    In November 2011, the WTO dispute settlement panel established to 
review the complaint found that the COOL rule violated U.S. commitments 
under the WTO Technical Barriers to Trade (TBT) Agreement because the 
rule treats imported Canadian cattle and hogs, and imported Mexican 
cattle, less favorably than domestic livestock. The United States 
appealed this ruling in March 2012 to the WTO Appellate Body. The WTO 
Appellate Body ruled in June 2012 and also found that the COOL rule 
violated U.S. obligations not to discriminate in its technical 
regulations.
    The United States requested a reasonable period of time to bring 
the rule into international compliance and the U.S. Department of 
Agriculture published revised rules nearly a year after the WTO 
Appellate Body ruling in May 2013. The Canadian and Mexican governments 
objected to the revised rules, and in August 2013 sought yet another 
review--a so-called compliance panel--to determine whether the revised 
COOL rule was WTO compliant.
    In October 2014, the WTO compliance panel report found the United 
States to be in continued violation of its WTO obligations under the 
TBT Agreement, but also in violation of the basic GATT 1994 agreement 
for discriminating against products imported into the United States. In 
fact, the WTO compliance panel found that the revised rule was even 
more discriminatory than the earlier version by requiring additional 
segregation. The United States appealed the decision in December, and a 
final WTO decision is expected this spring.
    Given the earlier findings, including the most recent finding that 
the revised rule is more discriminatory, it is widely expected that the 
WTO Appellate Body will find that these rules discriminate against 
imports from Canada and Mexico. As a result, both Canada and Mexico 
will be authorized to retaliate against billions of dollars of U.S. 
exports.
II. Impact of Retaliation on U.S. Exports, Industries and Jobs
    This past year, the NAM and U.S. Chamber of Commerce joined with 
other broad industry groups and individual companies to form the COOL 
Reform Coalition to urge action to avoid WTO-authorized retaliation on 
a wide variety of U.S. non-agricultural exporting industries.
    Canada and Mexico are by far the United States' largest export 
markets, and purchased a record $485 billion in manufactured goods in 
2014. Those exports support millions of U.S. jobs. WTO-authorized 
retaliation by two of the largest U.S. trading partners could result in 
billions in tariffs affecting multiple sectors of the U.S. economy, 
threatening the livelihoods of American families.
    Canada has put forward a proposed retaliatory list. The list 
includes agricultural products such as beef, pork, cheese and fresh 
fruit. But the impact would be much broader: steel pipes, heating 
appliances, office furniture and mattresses are among the manufacturing 
products on the proposed list.
    Mexico has not set forth what products could be included on its 
list. But the impact on U.S. companies is expected to be severe, if 
history serves as our guide. Mexico imposed tariffs as high as 45 
percent on 99 U.S. products after a North American Free Trade Agreement 
(NAFTA) dispute settlement panel sided with Mexico on a dispute over 
cross-border trucking in March 2009. More than $2.5 billion of U.S. 
exports to Mexico were affected, resulting in lost sales and lost jobs. 
Agricultural and manufactured goods were both listed on Mexico's 
trucking retaliation list, ranging from potatoes, pork, cheese and red 
wine to office equipment and home appliances (refrigerators, dish 
washers, washing machines). Many companies reported that once they lost 
sales to Mexico because of the retaliatory tariffs, they lost that 
customer for the foreseeable future. Those lost sales were devastating 
to businesses, workers and their communities across the U.S. economy.
    As well, there are broader systemic concerns. The dispute is also 
about U.S. international leadership and whether the United States will 
meet the international obligations that it has voluntarily undertaken--
and indeed created--as a founding member of the WTO.
    Since the WTO was created in 1995, there have been about 490 
complaints. The United States has brought over 113 complaints, most of 
which it has won or favorably settled. The United States has been the 
respondent in over 140 cases, of which it has been found out of 
compliance in about \1/3\ of the cases.\2\
---------------------------------------------------------------------------
    \2\ See Office of the United States Trade Representative (USTR), 
``Snapshot of WTO Cases Involving the United States'' (May 22, 2014), 
https://ustr.gov/sites/default/files/Snapshot%20May.pdf.
---------------------------------------------------------------------------
    It is very much in the long-term economic interests of the United 
States to live by the rules of the international trading system and to 
ensure that other countries do the same. We led the world in writing 
these rules first in the General Agreement on Tariffs and Trade (or 
GATT) in 1947 and then with the creation of the WTO in 1995, where 
binding dispute settlement was a primary U.S. objective.
    Enforcement of the rules-based trading system has helped American 
workers, farmers, and manufacturing companies secure access to overseas 
markets and grow exports and jobs in the United States. From barriers 
to grain in the European Union, shelf life restrictions in Korea to 
automotive restrictions, discriminatory taxes, and raw material and 
rare earth export restrictions in China, the WTO dispute settlement 
system is vital to America's access to world markets.
    As explained in the NAM's recent report, Trading up with TPA,\3\ 
growing U.S. manufacturing exports to win more of the nearly $12 
trillion in annual world trade in manufactured goods will provide 
substantial new opportunities to our nation's manufacturers and help 
sustain and grow American jobs. To be successful globally, our 
exporters need a respected and enforced global trade system. If 
countries, including the United States, do not live up to their 
obligations, the system will be weakened and our exporters will face 
even more onerous barriers.
---------------------------------------------------------------------------
    \3\ NAM, Trading up with TPA: Manufacturers Need New Trade 
Agreements for Jobs, Growth and Competitiveness (February 2015), http:/
/www.nam.org/Data-and-Reports/Reports/Trading-Up-With-TPA-(Full-
Report).pdf.
---------------------------------------------------------------------------
III. Action to Repeal WTO-Inconsistent COOL Provisions is Needed Now to 
        Avoid Retaliation
    Our nation's exporters are running out of time. Once a final WTO 
decision is announced, retaliation by Canada and Mexico could be 
authorized as soon as 60 days thereafter.
    Even before retaliation is in place, U.S. exporters will lose 
sales, as we did during the cross-border trucking dispute with Mexico. 
Just as in the United States, customers oftentimes plan months in 
advance and once a decision is made will seek to import from countries 
that are not targeted for retaliation. As a result, America's exporters 
will start losing sales immediately even if we allow a brief period of 
non-compliance after final adjudication.
    Failure to act quickly to bring the United States into compliance 
will put at risk billions of dollars of U.S. exports to Canada and 
Mexico and the industries and the jobs of tens of thousands of workers 
that produce those goods.
IV. Conclusion
    The NAM's primary objective, as a co-chair of the COOL Reform 
Coalition, has always been to avoid retaliation by Canada and Mexico 
and to prevent a loss of export sales by our nation's manufacturers. In 
that capacity, we have urged Congress to create a process to be able to 
quickly bring the U.S. into compliance with its international 
obligations by a final ruling. Congress has not acted.
    With the threat of retaliation looming for our nation's 
manufacturers, time has run out. The NAM and the COOL Reform Coalition 
urge Congress to bring the United States back into compliance with its 
WTO obligations fully and quickly through the repeal of these WTO-
inconsistent provisions.
    Thank you for the opportunity to appear today. I look forward to 
working with the Committee to resolve this important issue.

    The Chairman. Mr. LaFaille.

         STATEMENT OF TOM LaFAILLE, VICE PRESIDENT AND
          INTERNATIONAL TRADE COUNSEL, WINE INSTITUTE,
                        WASHINGTON, D.C.

    Mr. LaFaille. Mr. Chairman, Ranking Member Costa, and 
Members of the Subcommittee, my name is Tom LaFaille with the 
California Wine Institute. We represent 1,000 California 
wineries and related businesses. We appreciate your leadership 
on this important issue.
    COOL represents an enormous threat to California exports 
and U.S. exports of wine. Whether you are a wine consumer or 
not, there is a winery in every state in the United States, 
including the Chairman's home State of North Carolina, with 
Biltmore Estate Winery that exports. We have estimated that it 
is a $120 billion industry, which created over 800,000 jobs, 
largely in rural areas. So wineries represent an important 
economic factor around the country.
    Globally, U.S. exports of wine reached $1.5 billion last 
year. It was slightly down due to the strong dollar and the 
West Coast port shutdown. Retaliatory tariff, whether by Mexico 
or Canada, would represent a significant additional challenge 
on top of the challenges we face. Wine Institute works to 
fight--to work against tariff trade barriers, tariff barriers, 
as well as non-tariff barriers, but it is a country's tariff 
that is the most significant factor in determining a market's 
export potential.
    We estimate that COOL-related damages to the U.S. wine 
industry could reach upwards of $500 million. We know that 
retailers will soon begin buying elsewhere, price-sensitive 
consumers will shop elsewhere, and it will take years to gain 
back the current market share that we have.
    We learned this the hard way with Mexico's two previous 
tariff retaliations. In 2007, we had sales of $22 million in 
exports to Mexico. After the retaliation, they quickly dropped 
to $11 million. That is a 50 percent drop in 1 year. And even 
after the tariffs were eliminated in 2011, it took another 3 
years, to this year, before our exports finally reached the 
2007 levels. So we know that retaliation will cause enormous 
loss of sales and U.S. jobs. So we urge Congress to act quickly 
once the WTO's decision is made, in order to prevent 
retaliation.
    Thank you for your leadership and your efforts to grow U.S. 
exports.
    [The prepared statement of Mr. LaFaille follows:]

 Prepared Statement of Tom LaFaille, Vice President and International 
            Trade Counsel, Wine Institute, Washington, D.C.
    Chairman Rouzer, Ranking Member Costa, Members of the Subcommittee:

    Thank you for the opportunity to share our views on the important 
topic of Country-of-Origin Labeling (COOL) and the ramifications of 
Canada and Mexico imposing retaliatory tariffs on American wine 
exports.
    Wine Institute is the premier organization of 1,000 wineries and 
businesses in the United States (U.S.) and around the world. California 
wine represents 90% of U.S. wine production, 90% of U.S. exports and 
contributes over $120 billion annually to the U.S. economy.
    Wine Institute conducts a comprehensive export marketing campaign 
that communicates California as an aspirational place with beautiful 
landscapes, iconic lifestyle, great wine and food and as an 
environmental leader. With U.S. wine exported to more than 125 
countries, Wine Institute's work in 25 countries, supported by the U.S. 
Department of Agriculture's (USDA) Market Access Program (MAP), conveys 
these messages across the globe through a full slate of activities 
including international trade shows and trade missions, retail and on-
premise tastings for trade, media and consumers and a global social 
media campaign and consumer site DiscoverCaliforniaWines.com.
    We also work closely with other U.S. industry groups, the U.S. 
government and the international wine community--including the Canadian 
and Mexican Governments and their winemakers in the World Wine Trade 
Group and the Asia-Pacific Economic Cooperation Wine Regulatory Forum--
to lower tariff and non-tariff trade barriers and to grow exports for 
our mostly small and medium sized, family run businesses.
WWTG
    In light of the U.S.'s collaborative work with Canada to reduce 
barriers to trade and create a level playing field, it is most 
unfortunate that Canada has now chosen to involve wine and other 
products in an unrelated trade dispute. Wine Institute strongly opposes 
retaliatory tariff increases on any country's wines in response to a 
dispute, such as COOL, that does not involve wine.
    In fact, wine producers in the World Wine Trade Group (WWTG), a 
multinational organization that includes government and industry 
representatives of the U.S. and Canada have undertaken to follow the 
principle that wine should not be used for retaliation in trade 
disputes relating to other products. Wine Institute urges Canada to 
abide by the principles to which its own industry agreed in WWTG.
U.S. Wine Exports
    With Canada the No. 1 and Mexico the No. 6 market for U.S. wine 
exports, COOL-related retaliatory tariffs would have an enormously 
negative economic impact on our winemakers and grapegrowers. Sales of 
U.S. wines to Canada have grown steadily in recent years. Globally, 
2014 U.S. wine exports totaled $1.49 billion in revenues, the second 
highest dollar value for U.S. wine exports and a 64% increase from 5 
years ago. Our exports did suffer a slight decline last year because of 
the strong U.S. dollar and the West Coast port slowdown. Combined with 
those two challenges, a significant tariff increase in Canada would be 
another tough challenge for U.S. winemakers.
    Last year in Canada, U.S. wine exports reached $487 million, a 7% 
increase over 2013. California sales have experienced strong growth in 
all the major markets across Canada over the past few years. Retail 
sales now exceed a record six million cases and $1 billion with the 
strongest increases in the provinces of Quebec and Alberta. Canadian 
consumers have confidence in the quality and value offered by 
California and our wines are successful in all price segments.
    U.S. wineries are also experiencing similar success in Mexico, our 
sixth largest export market. In 2014, U.S. wine exports to Mexico 
totaled $24 million, a 13% increase over 2013.
COOL
    Canada's preliminary retaliation list targets a broad spectrum of 
commodities that will affect every state in the country, potentially 
delivering a paralyzing blow to U.S. winemakers, other farm and food 
economies and rural households. Under World Trade Organization (WTO) 
rules, retaliatory tariffs would likely be placed on the value of the 
products as entered into the retaliation country.
    Canada calls it a surtax on imports, which would mean that a bottle 
of wine entering into Canada with an import value of $10 would be hit 
with a $10 surtax. The resulting doubling of price for our wine in 
Canada will, no doubt, drive a large percentage of our customers away. 
In fact, we believe that if this cloud of uncertainty concerning a 
dramatic increase in the price of U.S. wine is allowed to persist, 
Canadian and Mexican wine buyers will soon begin looking elsewhere to 
stock their grocery and liquor store shelves.
    A Canadian tariff of this nature could cut off the vast majority of 
U.S. wine exports to Canada and cost U.S. winemakers hundreds of 
millions of dollars in lost sales. Adding to this harm, our market 
share will take many years to gain back. Consequently, the cost of 
winning back shelf space and market share over the years following the 
end of retaliatory tariffs will also be substantial.
    A difficult but important lesson can be drawn from Mexico's 
previous retaliatory tariffs. In two past trade disputes with the U.S., 
Mexico retaliated against U.S. products costing the U.S. millions of 
dollars in lost sales and lost market share. In 2009, Mexico imposed a 
20% tariff on wine due to the trucking dispute. This was the second 
retaliation imposed by Mexico on U.S. wine in 7 years, the first 
concerning a WTO dispute over the Byrd Steel Dumping Amendment, which 
the U.S. repealed in 2007.
    In 2007, U.S. wine exports to Mexico reached a high of $24 million 
in revenues to wineries. Following Mexico's retaliatory tariffs, U.S. 
wine exports dropped to $18 million in 2010, a 25% loss in sales. While 
Mexico eliminated its retaliatory tariffs in 2011, it took another 3 
years to 2014 before U.S. wine exports returned to just the level where 
they were in 2007.
    From this experience, it is certain that:

  1.  Retaliatory tariffs dramatically harm U.S. wine exports; and

  2.  It will take U.S. wineries many years, if not decades, to recover 
            from another country's retaliatory tariffs.
Conclusion
    In closing, COOL-related retaliatory tariffs will result in an 
enormous loss of sales for U.S. wineries, estimated to be in the 
hundreds of millions of dollars. Since the strong growth of U.S. wine 
exports to Canada and Mexico over the past decade has in part been due 
to USDA's Market Access Program, it would be most unfortunate now for 
Congress to allow another U.S. law such as COOL to undo these hard-
fought export gains.
    For these reasons, Wine Institute respectfully requests that 
Congress act quickly to address this critical matter. Thank you very 
much for your continued leadership and efforts to resolve this dispute 
and to grow U.S. exports.

Tom LaFaille,
Vice President and International Trade Counsel,
Wine Institute.

    The Chairman. Thank you very much.
    I am going to yield about 15, 20 seconds to Mr. Costa here 
to introduce Mr. Smith.
    Mr. Costa. Thank you very much, Mr. Chairman, for that 
privilege.
    It is indeed my honor to introduce Mr. Smith of Harris 
Farms. I have worked with Harris Farms Company for decades. 
They have developed a reputation not only in California but 
across the country as one of the premiere producers of beef, 
from the grazing, to the feedlot, to the processing, and to the 
value-added. They export a great deal of beef products, and 
have pioneered opening new markets in Asia and elsewhere, and 
it is indeed our honor to have Mr. Smith, representing Harris 
Farms, here this morning. Thank you, Mr. Smith.

STATEMENT OF MICHAEL T. SMITH, SPECIAL PROJECTS MANAGER, HARRIS 
                    RANCH COMPANY, SELMA, CA

    Mr. Smith. No, Congressman, thank you.
    Last year, I had the privilege to be asked to testify 
before this Subcommittee on the state of the beef industry, and 
at that time, I identified Mandatory Country-of-Origin Labeling 
as a critical issue for the beef industry, and one that really 
needed Congress to act upon. Now, 1 year later, I find myself 
here at this Subcommittee again, asking one more time that 
Congress take up this legislation, which, in its simplest form, 
is a solution looking for a problem, but in reality, it is just 
bad public policy. And I don't think I need to remind you that 
the clock is ticking.
    COOL has plagued our industry for years. Its supporters 
point to surveys showing that Americans want to know where 
their beef comes from, but most surveys fail to provide an 
accurate measure of how consumers actually vote, which is with 
their pocketbook.
    As a family-owned, functionally-integrated cattle feeder 
and beef processor, Harris Ranch has experienced firsthand the 
cost associated with implementing COOL. From burdensome record-
keeping of live animals, to sorting and segregating of 
carcasses in the coolers, to operating dedicated fabrication 
sets to separate the myriad of beef products generated from 
each and every carcass. Cattle producers are currently 
experiencing discounts ranging from $35 to $60 per head. They 
were applied for no other reason than Country-of-Origin 
Labeling. These discounts are hitting U.S. cattlemen, cattle 
feeders and processors that purchase cattle of Canadian and 
Mexican origin.
    In the southern tier States of California, Arizona, New 
Mexico, and Texas, cattle producers often purchase feeder 
cattle from Mexico to graze on pastures, or place them in 
feedlots to finish in the United States. Mexican-origin cattle 
are extremely important to the southern tier states because 
they provide production efficiencies associated with keeping 
cattle pens full, bunk space occupied, and quite frankly, blood 
on the floor. They provide a consistent supply of fed cattle 
for beef processing facilities, and especially those that are 
located near the border.
    I would turn to the fundamental question at hand. Why do we 
have COOL? I think everybody would agree, that question is 
especially important when you consider the WTO case. If Canada 
and Mexico win the most recent appeal, which we honestly 
believe they will, they will be allowed to retaliate not only 
against our industry, but many others as well, some of whom you 
have heard from today.
    Cattle: Canada and Mexico are two of the beef industry's 
top export markets, worth roughly $1 billion a piece. That is 
big money for any industry. In fact, it equates to roughly \1/
3\ of our total beef export value. If we lose access to those 
markets, it will have a profoundly negative impact on all U.S. 
beef producers. All of our current global market access equates 
to approximately $350 per fed steer and heifer marketed today. 
If we lose \1/3\ of that, roughly $115 will be taken directly 
out of the pocket of every cattleman in the United States.
    But the monetary losses are not all of the problem. The 
vigorous defense of COOL by our government sends an antitrade 
signal to the international community. The WTO keeps telling us 
that COOL violates our trade commitments, but our government 
keeps saying no, it does not. Future trading partners will look 
at this issue closely, and use it before they ink any trade 
deals with us. I am certain we would do the same if we saw 
similar behavior from our trading partners.
    Finally, I wonder why our government wants to hurt an 
industry for a simple marketing program, and that is really 
what it is. The vast majority of the industry does not want it, 
and consumers don't use it. COOL is about marketing, has 
nothing to do with food safety. Those who use that argument, it 
is basically a red herring because they just want to keep on to 
hold their position. At the end of the day, COOL is an 
experiment that has failed. We agree with Secretary Vilsack 
that Congress must act to fix COOL, but the only way to fix it 
and ensure that there won't be future WTO cases is to repeal 
it.
    Thank you.
    [The prepared statement of Mr. Smith follows:]

   Prepared Statement of Michael T. Smith, Special Projects Manager, 
                    Harris Ranch Company, Selma, CA
    Mr. Chairman, Ranking Member Costa, thank you for the opportunity 
to be here today to continue the discussion of mandatory, government-
run country-of-origin labeling better known as COOL.
    The COOL debate has plagued our industry for almost 2 decades. 
Proponents of COOL have long said that mandatory labeling would cause 
the U.S. consumer to actively seek out and pay more for U.S. beef. Over 
6 years of implementation, however, has proven this is not the case. 
Kansas State University published a study titled ``Mandatory Country-
of-Origin Labeling: Consumer Demand Impact'' in November of 2012. Their 
study utilized multiple methods to gauge consumer perception and use of 
COOL, and came away with several findings which did not surprise those 
of us in the beef industry. The study discovered that demand for 
covered meat products has not been impacted by mandatory country-of-
origin labeling (MCOOL) implementation. In addition, typical U.S. 
consumers are unaware of MCOOL and do not look for meat origin 
labeling.
    While proponents of COOL say they have surveys that show Americans 
want to know where their beef comes from, the K-State study actually 
measured how Americans vote. Americans vote with their pocketbook by 
purchasing beef, and as stated above, the vast majority don't consider 
COOL in their purchasing decision. Why then would we incur the costs of 
a program that the consumer is not demanding? As a cattle feeder and 
packer, Harris Ranch has experienced the costs associated with 
implementing COOL. From burdensome record-keeping, to line sorting and 
segregation, and to the actual label itself, we have been paying the 
costs of COOL since it went into effect in October of 2008. All 
segments of the U.S. beef industry have been impacted by COOL.
    Feeders and packers across the country, and of all sizes, are 
experiencing the same issues with compliance costs and discounts. As a 
result of the costs associated with the implementation of COOL, we have 
seen discounts paid on cattle which originate in either Canada or 
Mexico. Those discounts have ranged from $35 to $60 per head. These 
discounts are incurred for no other reason than COOL. The cattle can 
have the same quality characteristics as a similar animal of domestic 
origin, but will be discounted because of COOL. The discounts are not 
just borne by Canadian and Mexican producers. U.S. cattle producers and 
feeders are incurring these discounts as well.
    In states such as California, Arizona, New Mexico and Texas, cattle 
producers will bring in feeder cattle from Mexico and finish them in 
the United States. This takes place on U.S. ranches and feedlots 
utilizing U.S. labor and U.S. grown feed. This production method is 
seen in other states and is the primary way many cow/calf producers and 
cattle feeders are feeling the brunt of COOL. Again, these discounts 
are being realized by American beef producers thanks to a program that 
proponents said would help them.
    Given all I've stated above, I again have to ask the question ``why 
do we still have COOL?'' That question is especially relevant when you 
look at the World Trade Organization (WTO) case filed by Canada and 
Mexico against our mandatory, government-run COOL program. The WTO has 
ruled against the U.S. COOL program three times, most recently in 
October of 2014. The U.S. Government, however, has appealed this 
decision. We expect the WTO to rule on the current appeal on, or about, 
May 18th. If Canada and Mexico win their appeal for a fourth time, 
which we believe they will, they will be allowed to retaliate against 
our industry and many other industries across the United States.
    Canada and Mexico have consistently been two of our top five 
markets for the export of U.S. beef. In 2014, Canada imported over $1 
billion in U.S. beef and Mexico imported almost $1.2 billion. That is 
big money for our industry. In fact, it equates to approximately \1/3\ 
of our total beef export value. If we lose access to those markets, or 
have tariffs placed on them, it will have a negative impact on U.S. 
producers. All of our current global market access equates to 
approximately $350 per marketed head. If we lose \1/3\ of that, roughly 
$115 per head will be taken out of the pocket of every U.S. cattle 
producer. That is a cost in addition to all we have incurred with 
compliance.
    As I mentioned above, we have been paying the costs of COOL since 
2008. Retaliation would only make our losses worse. The monetary losses 
are not all, though. The vigorous defense of COOL by our government 
does not send a pro-trade signal to the international community. The 
WTO keeps telling us that COOL violates our trade commitments, but our 
government keeps saying it doesn't, even though the very entity 
regulated does not support the program. Future trading partners will 
look at this closely and use it before they ink any trade deals with 
us. We would do the same if we saw that behavior from any of our trade 
partners. This anti-trade stance is contrary to the very pro-TPA 
rhetoric we are hearing from this Administration. So, just who are they 
trying to protect with COOL?
    Why would our own government want to hurt our industry for a simple 
marketing program that the vast majority of the industry does not want 
and that the consumer does not use? COOL is all about marketing and has 
absolutely nothing to do with food safety. Those who use that argument 
know nothing about the food safety protocols in this country. This is a 
red herring used by COOL proponents in a desperate attempt to hold on 
to their position. COOL is a farce and its proponents obviously have no 
idea how modem beef production in the United States actually works. 
They have a simple and short-sighted view which is already costing our 
industry money.
    COOL is a failed experiment. It has added costs to the production 
of beef and resulted in discounts borne by American ranchers; the U.S. 
has been found out of compliance with our WTO trade obligations three 
times, and soon to be a fourth; and our two closest trading partners 
are potentially months away from instituting retaliatory tariffs 
against multiple industries, damaging our economy and costing jobs. All 
of these negative consequences result from a program that the typical 
consumer does not even look for when buying their steaks or ground 
beef.
    After the WTO ruled against the U.S. in 2012, USDA took NFU's 
advice and revised the COOL regulations. Today, we're seeing the 
result: a more burdensome COOL program for the meat industry; more 
steps in the WTO case taking us to the brink of retaliation; 
uncertainty for U.S. exporters in multiple industries; and a label even 
less useful or meaningful to the consumer. This must stop. The 
Secretary of Agriculture has made several public comments over the past 
few months, most recently at the NFU convention, that there is nothing 
else he can do to bring COOL into compliance and that Congress must 
act. On that point, we agree. We must ensure that we are not sitting 
here again in 2 years, facing another potential loss at the WTO. The 
solution is for Congress to repeal COOL now. Half-measures or other 
alterations to COOL will only bring more uncertainty and possible WTO 
challenges. That is unacceptable to the meat industry, as well as to 
the other industries forced to look over their shoulders, worried about 
potential retaliatory tariffs from Canada and Mexico. We encourage you 
to work with Chairman Conaway to repeal COOL before retaliation is 
implemented.
    Mr. Chairman, thanks for the opportunity to be here today.

    The Chairman. Ms. Bodor.

 STATEMENT OF ALISON BODOR, EXECUTIVE VICE PRESIDENT, NATIONAL 
          CONFECTIONERS ASSOCIATION, WASHINGTON, D.C.

    Ms. Bodor. Good morning. I am Alison Bodor, Executive Vice 
President of the National Confectioners Association, and I 
appreciate this opportunity to testify on behalf of America's 
confectionary companies that manufacture and market the vast 
majority of chocolate, gum, candy, and mints sold in the United 
States.
    NCA also represents the companies that supply those 
manufacturers, and companies who serve as brokers. More than 
\2/3\ of NCA's 290 members are small businesses. Many of the 
industry's manufacturers are now fourth and fifth generation 
family-owned companies, started by immigrants before the turn 
of the century. The industry supports 70,000 jobs across the 
United States, and if you add in supplier and distribution 
networks, that number easily triples.
    NCA members have long supported free trade. This is despite 
the fact that our companies are disadvantaged in our own 
domestic marketplace by U.S. agriculture subsidies that 
increase the price of sugar, one of our key ingredients, in the 
U.S. compared to the world price that our global competitors 
enjoy. Confectionary manufacturers are major users of U.S.-
grown commodities, including sugar, corn sweeteners, dairy 
products, peanuts, almonds, and other nuts. These industries, 
of course, benefit also from U.S. exports of confections.
    In 2014, U.S. confectioners exported more than $2 billion 
worth of candy, chocolate, gum, and mints, and bulk chocolate 
products around the world. Not surprisingly, Mexico and Canada 
are our most important trading partners. Forty percent of U.S. 
confectionary exports are to Canada, $900 million worth, while 
15 percent are to Mexico. These two markets together total over 
50 percent of U.S. confectionary exports. We are deeply 
concerned that retaliatory duties from both countries will 
target our industry.
    Let me talk about Canada. Currently, four confectionary-
related tariff codes are on Canada's proposed retaliatory duty 
list. These codes capture U.S.-made bulk chocolate 
preparations, finished chocolate confections, and sugar-free 
sweeteners. Together, these confectionary products represented 
$615 million of confectionary exports to Canada last year. U.S. 
confectioners have worked hard to grow the presence of U.S. 
confections and intermediate products in Canada, and our 
efforts are paying off. Exports of finished chocolate grew by 
almost $45 million in just the last 2 years, while exports of 
bulk chocolate grew by almost $12 million. Those years of 
investment will quickly be diminished if the retaliations from 
Canada are implemented. For all of these products; chocolate, 
bulk chocolate, wafers, biscuits, and sweeteners, there are 
Canadian and global competitors. Many American-made chocolates 
will disappear from Canadian shelves. Manufacturers in Canada 
that source critical raw materials from U.S.-based suppliers 
will shift supply chains outside of the United States. That 
loss of business will impact U.S. confectionary companies, 
their workers, and importantly, also their communities.
    The Government of Mexico has not yet declared the products 
upon which they intend to levy duties if WTO grants 
retaliation, but U.S. confectioners are very troubled that our 
industry will again be targeted, as they were several years ago 
during the U.S.-Mexico cross-border trucking dispute. At that 
time, Mexico implemented a 20 percent duty on confectionary 
products. That resulted in a 50 percent drop in U.S. 
confectionary exports.
    The longer these disputes are unresolved, the greater the 
consequences to the U.S. confectionary industry, and the 
communities in which those companies reside. U.S. confectioners 
urge Congress and the affected industries to find a resolution 
that ensures U.S. compliance with international trade 
obligations, and avoids retaliatory actions against our exports 
to the north, and possible retaliation for our exports to the 
south.
    Thank you very much.
    [The prepared statement of Ms. Bodor follows:]

Prepared Statement of Alison Bodor, Executive Vice President, National 
              Confectioners Association, Washington, D.C.
Impact of the Trade Dispute Over Country-of-Origin Labeling on the U.S. 
        Chocolate and Confectionery Industry
    I appreciate this opportunity to testify on behalf of America's 
confectionery companies before this Subcommittee. NCA has been 
representing companies that manufacture candy, one of life's little 
pleasures, since 1884. Today, NCA represents 290 companies that 
manufacture and market the vast majority of chocolate confectionery, 
sugar confectionery, gum and mints sold in the United States, 260 
companies who supply those manufacturers and 135 companies who serve as 
third-party sales agents for manufacturers, known as brokers.
    More than \2/3\ of NCA's members are small businesses. Many of the 
industry's manufacturers are now fourth and fifth generation family-
owned companies, started by immigrants before the turn of the century. 
There are confectionery manufacturers in all 50 states, with a 
particular concentration in Pennsylvania, New York, New Jersey, 
Illinois, Ohio and California.
    According to the U.S. Department of Labor, in 2009 (the latest data 
available) there were about 70,000 Americans directly employed by the 
confectionery industry. When you count the related number of sales and 
distribution jobs associated with the industry, that number triples. 
Confectionery workers are represented by the Bakery, Confectionery, 
Tobacco, and Grain Millers; United Food and Commercial Workers 
International; and the Teamsters Unions.
    Confectionery manufacturers are major users of U.S.-grown 
commodities including sugar, corn sweeteners, dairy products, peanuts, 
almonds and other nuts. These industries, of course, benefit also from 
U.S. exports of confections.
    NCA members have long supported free trade.
    NCA companies have actively engaged in the President's National 
Export Initiative. In 2014, U.S. confectioners exported more than $2 
billion worth of candy, chocolate, gum, mints and bulk chocolate 
products around the world. Not surprisingly, Mexico and Canada are our 
most important trading partners. Forty percent of U.S. confectionery 
exports are to Canada ($900 million) while 15 percent (more than $300 
million) are to Mexico. These two markets together total over 50 
percent of U.S. confectionery exports. We are deeply concerned that 
retaliatory duties from both countries will target our industry.
    Let me tell you more about how U.S. confectioners will be impacted 
if Canada proceeds with retaliatory duties. Currently, four 
confectionery related tariff codes are on Canada's proposed retaliatory 
duty list. These codes capture U.S.-made bulk chocolate, finished 
chocolate confections and sugar-free sweeteners. Together, these 
confectionery products represented $615 million of U.S. exports to 
Canada last year.
    Tariff code 1806.90 covers chocolate and chocolate confectionery. 
Included here are chocolates in varied forms, such as buttons, coins, 
drops, hearts, animals, and other shapes along with assorted boxes of 
chocolate and hot cocoa mixes. U.S. confectioners supply more than 50 
percent of Canada's total imports in this category. Examples of typical 
chocolate products classified under 1806.90 are pictured below. 

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Sweet biscuits and waffles/wafers are covered under tariff code 
1905.31 and 1905.32. Forty-two percent of Canada's total imports of 
sweet biscuits and \2/3\ (68 percent) of Canada's total imports of 
waffles/wafers are sourced from the U.S. Some of NCA's members 
manufacture chocolate-covered or chocolate-containing sweet biscuits, 
waffles and wafers. Examples to illustrate such finished products are 
pictured below.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 
 
 
Example of chocolate-covered sweet   Examples of chocolate-covered
 biscuits (1905.31)                   waffles and wafers (1905.32)
 

    Tariff code 1806.20 covers bulk chocolate preparations. These 
include chocolate crumb, liquid chocolate and chocolate slurries, all 
of which are used in the manufacture of chocolate and chocolate-
containing products. U.S. chocolate makers supply more than 75 percent 
of Canada's total import demand of bulk chocolate preparations.
    Certain sugar substitutes including sorbitol and xylitol are 
included in Tariff Code 2940.00. More than \1/4\ (28 percent) of 
Canada's total imports of sweeteners of 2940.00 are sourced from the 
U.S. As the sugar-free market continues to grow, sugar substitute 
inputs sourced from the U.S. continue to grow to support manufacturing 
of sugar-free gum and confectionery.
    U.S confectioners have worked hard to grow the presence of U.S. 
confections and intermediates in Canada and our efforts are paying off. 
Exports of finished chocolate grew by almost $45 million in just the 
last 2 years, while exports of bulk chocolate grew by almost $12 
million. Those years of investment will quickly be diminished if the 
retaliations are implemented. For all of these products--chocolate, 
bulk chocolate, wafers/biscuits and sweeteners--there are Canadian and 
global competitors. Many American-made chocolate products will 
disappear from Canadian shelves. Manufacturers in Canada that source 
critical raw materials from U.S.-based suppliers will shift supply 
chains outside of the United States. We are aware already of Canadian 
companies using the threat of the retaliation to lure manufacturers to 
new and more secure supply sources. The loss of business will impact 
U.S. confectionery companies and their workers, also their communities.
    The Government of Mexico has not yet declared the products upon 
which they intend to levy duties if WTO grants retaliation, but U.S. 
confectioners are very troubled that our industry will again be 
targeted as they were several years ago during the U.S.-Mexico cross-
border trucking dispute.
    The longer these disputes are unresolved, the greater the 
consequences to the U.S. confectionery industry.
    U.S. confectioners urge Congress and the affected industries to 
find a resolution that ensures U.S. compliance with international trade 
obligations and avoids retaliatory actions against our exports to the 
north, and possible retaliation for our exports to the south.

    The Chairman. I would like to thank each of the witnesses 
for your testimony today.
    We will now move into a period of questions by our Members. 
I need to note that given the time constraint we are under due 
to the Joint Session of Congress, in fact, we need to be out of 
this hearing room by around 10:20, 10:25. I ask unanimous 
consent that Members limit their questioning to 3\1/2\ minutes. 
Without objection, so ordered.
    I now recognize myself for 3\1/2\ minutes.
    My question is directed to Mr. Wenk and Ms. Dempsey. As I 
mentioned in my opening statement, when countries impose non-
tariff trade barriers on U.S. agriculture products, and 
encourage other nations to adopt similarly protectionist 
policies, we would certainly all expect the United States 
Government to fight vigorously against those policies. I also 
understand that to criticize other nations for imposing 
protectionist barriers to our products means that we must 
likewise be critical of our own policies that do the same.
    Now, do both the U.S. Chamber of Commerce and the National 
Association of Manufacturers consider Country-of-Origin 
Labeling a non-tariff trade barrier?
    Ms. Dempsey. Yes, the NAM believes that the barrier is, in 
fact, a non-tariff trade barrier.
    The Chairman. Mr. Wenk?
    Mr. Wenk. Yes, we do.
    The Chairman. Thank you very much.
    I now recognize Mr. Costa for any questions he may have.
    Mr. Costa. Thank you very much, Mr. Chairman.
    Mr. Smith, you did accounting of the costs that your own 
company incurred in trying to comply with it. What was the 
timeline in trying to put that together to ensure that you were 
in compliance?
    Mr. Smith. The timeline for putting the program together, 
Mr. Costa?
    Mr. Costa. Yes.
    Mr. Smith. Okay. When COOL was first implemented, 
obviously, we were fortunate in that USDA met with industry, 
and sat down and came up effectively with a means by which we 
weren't going to dramatically reduce the speed at which 
commerce would occur in terms of selling live animals to one 
another. As a company, obviously, you try to plan ahead, you 
try to expect what some of these difficulties are going to be. 
You put together programs, procedures, so that you make certain 
that livestock are segregated accordingly, you identify 
specific days upon which those cattle will move into your 
processing facility, not only what day but what hours of 
certain shifts.
    Mr. Costa. And you run two shifts there at your operation.
    Mr. Smith. Actually, just one, Congressman Costa. We run 
two shifts in ground beef production, but the actual harvest 
and processing of the carcasses is just one 8 hour shift.
    Mr. Costa. But I noted that you export to Asia. Are you 
currently exporting any product to Mexico?
    Mr. Smith. We are, sir.
    Mr. Costa. Or Canada?
    Mr. Smith. And it amounts to roughly $1.5 million in value 
as far as sales to Mexico.
    Mr. Costa. So you are concerned about retaliatory effects 
would possibly occur immediately then.
    Mr. Smith. Very much so, sir.
    Mr. Costa. Yes. I assume you consider this a non-tariff 
barrier if enacted?
    Mr. Smith. Yes, we do.
    Mr. Costa. Mr. LaFaille, you consider it the same?
    Mr. LaFaille. Absolutely, Mr. Costa.
    Mr. Costa. When we talk about the impact to the wine 
industry, that has tried very hard to penetrate foreign 
markets, with some success, what potential fallout do you see 
in the event that Congress doesn't act if we get the adverse 
ruling we are expecting by the end of this year?
    Mr. LaFaille. Well, we know that retailers will start to 
look at other countries' wines and--rather than ours, even 
before retaliatory tariffs will hit. At the same time, once 
they hit, consumers, who are definitely price-sensitive, are 
going to be looking to less expensive products, and so we know 
that this is exactly what happened in Mexico, and it took 7 
years to recover.
    Mr. Costa. All right. Have we gotten any clarification with 
the U.S. Office of Trade Representative as to whether or not 
this is a 4 to 6 month process, instead of the 60 days that 
some are anticipating?
    Mr. LaFaille. I am not certain of that.
    Mr. Costa. Anyone else care to opine?
    Mr. Johnson. I would only point out that history would 
indicate that almost every WTO deadline that they lay out is 
not met by some long period of time. They generally are very 
late because they are very overworked.
    Mr. Costa. Okay.
    All right, my time has expired, Mr. Chairman. Thank you. I 
will wait until the next round, if there is one.
    The Chairman. Thank you, Mr. Costa.
    I now recognize Mr. Emmer.
    Mr. Emmer. Thank you, Mr. Chairman.
    As you know, I come from Minnesota, and when I arrived here 
to Congress, some of the advice I received was focus on an area 
that is not only in your wheelhouse but it is important to your 
state, as opposed to getting involved in everything. Minnesota 
is still home to 19 Fortune 500 companies, and our two biggest 
private economic drivers are agriculture and manufacturing. Our 
state is all about trade, including trade with Canada and 
Mexico. In fact, Canada is Minnesota's top export market, and 
it is our number one export market for agriculture and 
agrifood.
    The questions that I have, and I will try to keep them 
brief, is first, many of you have talked about the effects of 
retaliation to your producers or members, but what would these 
retaliations look like to the average person buying a pound of 
ground beef at the grocery store, or an office chair at Office 
Depot? Can you give me an idea what that will look like to the 
consumer?
    Ms. Dempsey. Let me start. I mean trade is absolutely vital 
not just to produce jobs in industries and agriculture and 
services and certainly manufacturing, but it helps give 
consumers in the United States choice of quality products, 
choice over price. The loss of new opportunities and existing 
opportunities in Canada and Mexico that we see resulting from 
the retaliatory tariffs that we fully expect Canada and Mexico 
to impose, and very likely in 2 months, it will be a short 
time, they have waited years on this to resolve this dispute, 
that will result in lost opportunities, less efficiency, less 
innovation both in our manufacturing sector and others.
    Mr. Emmer. It would be great, Mr. Smith, if you could give 
me an idea----
    Mr. Smith. I don't know if I can necessarily give you a 
dollar figure, Congressman, in terms of what the net impact 
financially will be to the consumer, but I know that there will 
be lost opportunity there in terms of being able to purchase 
value-added products.
    As a company, this retaliation, and I just want to go on 
record to state that it would be more than just potentially the 
increased tariffs on beef products that we would market, but as 
a large farming operation as well, it will have negative 
impacts. I know that on their list the Canadians have 
identified cherries, oranges----
    Mr. Emmer. Right.
    Mr. Smith.--tomato paste, three of the commodities that we 
are very big in producing as well.
    Mr. Emmer. And I appreciate that. I just was going back to 
Mr. Weber's original testimony, and he has a figure in there 
that shows Minnesota could lose depending on $2 to $4 billion 
in retaliation, somewhere between 250 and 500 jobs. Since we 
have short time, the question I want to ask, the last one, to 
all of you is, in lieu of the conflicting data that surrounds 
the cost and benefits of COOL, does anyone see a solution that 
would be satisfactory to all parties involved, and perhaps 
maybe not you, Mr. Smith, based on your testimony, but a 
solution that would be satisfactory to everyone and WTO 
compliant?
    Mr. Johnson. Mr. Chairman, if I could take the first crack 
at that. It gets to part of your previous question too. There 
is no right to retaliate unless there is proven economic 
damages. The only evidence introduced to the WTO at this point 
is based on proprietary pricing data provided by the CCA in 
Canada, and it has been overwhelmingly refuted by publicly 
available data in the Taylor study that I referenced.
    [Submitted information in response to Mr. Emmer's question 
and it is located on p. 71.]
    Mr. Emmer. Thank you, Mr. Chairman. That is not really 
helpful to me. I was looking for a solution as opposed to an 
argument.
    So I yield back, Mr. Chairman. And thank I the witnesses 
for their time.
    The Chairman. The gentleman's time has expired.
    Mr. Yoho, 3\1/2\ minutes.
    Mr. Yoho. Thank you, Mr. Chairman. I appreciate the 
opportunity. I appreciate your testimony.
    COOL started in 2002, and it was implemented in 2009. Since 
that time, we have had this disgruntlement, the disruption of 
the market, the lawsuits and all that, and when I look at the 
responsibility of the USDA, is it the responsibility of the 
USDA and the government to illustrate the origin of the meat 
that the U.S. consumer eats, like Canada and Mexico, or is it a 
trade issue?
    Mr. Smith, let me ask you first.
    Mr. Smith. I am sorry, Congressman, I didn't understand 
your question.
    Mr. Yoho. Is it the responsibility of the USDA to demand, 
or require Country-of-Origin Labeling, or should that be 
negotiated in the trade issues like with NAFTA, when NAFTA came 
out, should that have been put in there and not after the fact 
when NAFTA was negotiated?
    Mr. Smith. Right now, USDA has oversight over those 
labeling requirements.
    Mr. Yoho. I understand that, but should that have been 
negotiated in NAFTA when it first happened, instead of after 
the fact?
    Mr. Smith. Perhaps in hindsight, yes.
    Mr. Yoho. All right. My other question is, the COOL label 
doesn't make a product safer.
    Mr. Smith. That is correct.
    Mr. Yoho. It doesn't add to the traceability of a product. 
The USDA has sole responsibility of saying a product is 
wholesome, healthy and good for the consumer or marketable. And 
I don't see the benefit of the COOL labeling, and you guys have 
brought it up for the majority of the panel that it has added a 
burden to the U.S. producer, it has put us in trade 
retaliation. And let us see, probably the best way to go in 
this is looking at the complete repeal of that, and I hope out 
of this Committee, and with your recommendation, that is the 
smartest way to go, and have these things negotiated in trade 
agreements. As I said, the labeling doesn't make the product 
any safer for the consumer. It doesn't increase the 
traceability. In addition, it adds $2 billion to the cost of 
meat, which is ultimately paid for by us, the consumer, and it 
affects the people at the lower income levels higher.
    So with that, we will listen to your recommendations, and I 
look forward to working on that so that we can move beyond this 
and not have retaliation from our trading partners. And coming 
from the State of Florida, I was born in Minnesota like Mr. 
Emmer, but my parents had the good sense to move to Florida. 
And Canada is Florida's largest trading partner also, and it 
would be tough for us. We ship a lot of citrus up there. And I 
look forward to working through this so that we build those 
alliances with our trading partners stronger so that we keep 
agriculture a strong trading tool.
    I am going to yield back, Mr. Chairman. And I appreciate 
it, and congratulations.
    The Chairman. Thank you very much.
    The gentleman from Washington, Mr. Newhouse.
    Mr. Newhouse. Thank you very much, Mr. Chairman, and you 
are doing a great job this morning. Thank you all for being 
here and helping us understand the implications of this very 
important issue.
    Let me take the brief time I have to ask a couple of 
questions real quickly. First of all to Mr. Weber and Mr. 
Smith, you have talked about the cost of COOL and the 
implications that it has had on our industries. Since its 
enactment, can you point to anything of benefit, increased 
sales, any kinds of an upside to this at all? I am trying to 
understand if there is a flipside to this as well.
    Mr. Smith. No, sir, we have seen none. And you would think 
that as a branded beef company, one of the first branded beef 
companies in the U.S., if we saw an economic benefit associated 
with being able to identify products coming from a specific 
entity, whether it be product of the U.S., we would have, on 
our own fruition, approached the USDA, because companies can do 
this, and asked to make label claims. We saw no benefit in the 
marketplace. We did demographic studies, we asked some of our 
customers do you think the end consumer would like to see this 
type of information, and almost to a man, they have said no. So 
to answer your question, Congressman, we see no benefit 
whatsoever, no, sir.
    Mr. Newhouse. Mr. Weber, any thoughts?
    Mr. Weber. Yes, Congressman. I think I would agree with 
that statement. It is very hard to measure any type of economic 
benefit from Country-of-Origin Labeling, much more difficult 
than it is to label the cost of having to comply with Country-
of-Origin Labeling. The difficulty it presents for packers, 
processors, producers, clear down to the retail level, there is 
added cost involved and it is hard to pinpoint that in any one 
sector, but from an economic benefit, it would be extremely 
difficult to say that consumers are benefiting from Country-of-
Origin Labeling.
    Mr. Newhouse. Okay, thank you. Mr. Wenk and Ms. Dempsey, 
can you tell me if the potential retaliation is having any 
impact on our industries already, just the existence of the 
potential?
    Mr. Wenk. Well, thanks, Congressman. This is a dark cloud 
that is forming over U.S. exporters right now, and that is very 
much why this hearing today is very timely. And as I said in my 
testimony, we believe that the way forward right now is for 
Congress to move forward on legislation to repeal the COOL rule 
for muscle cuts of meat. And just in Washington, sir, if you 
look at our website, www.COOLReform.com, you will see that 
there are several products in your state that could be impacted 
by retaliatory tariffs; apples, cherries, pears, potatoes, 
video game consoles, to name a few. So this is a very urgent 
topic, sir, and it is having an impact, and it is a dark cloud 
that is forming over our exporters right now.
    Mr. Newhouse. Thank you.
    Ms. Dempsey. I agree with Mr. Wenk, and would just add that 
just as in the United States, customers overseas oftentimes 
plan months in advance, and once a decision is made----
    Mr. Newhouse. Yes, right.
    Ms. Dempsey.--to purchase, they are going to make that 
purchase. And so this looming threat of retaliation, which we 
believe will be very substantial given the disruption in 
Canadian and Mexican trade in this area, will have, and will 
have not an effect just on that one sale, but could, as we saw 
in the Mexico trucking case, it could affect sales to those 
customers for years to come because once you lose that 
customer, you are not going to get them back very quickly 
again.
    Mr. Newhouse. Right. Well, thank you very much.
    And, Mr. Chairman, I have gone over. Thank you for your 
indulgence.
    The Chairman. Thank you very much.
    I will now recognize the gentlewoman from Missouri, or 
perhaps for the benefit of the other \1/2\ of the population of 
that great state, perhaps I should say Missouri, Mrs. Hartzler.
    Mrs. Hartzler. Either one works, but I am proud to be a 
lifelong farmer and glad to be here today in this very, very 
important issue. I appreciate your testimony.
    I wanted to start with Mr. Weber and Mr. Smith. Secretary 
Vilsack recently stated that if we lose the appeal of the WTO, 
Congress essentially has two options; come up with some sort of 
generic label, or repeal the current law. So I was just 
wondering, has the Secretary approached either of your 
organizations to discuss possible alternatives to a full repeal 
of COOL?
    Mr. Weber. I am not aware that he has approached our 
organization as far as a solution to COOL. I think, from our 
position, due to the urgency that we have, and I guess I would 
like to maybe address Congressman Costa's previous question, it 
is 60 days by rule, and we are staring this in our eyes, this 
threat of retaliation. The Canadians and the Mexicans are both 
ready to move, so I don't think we have much other option other 
than repeal of the statute that is causing the problem here.
    Mrs. Hartzler. Mr. Smith?
    Mr. Smith. I would concur with those remarks. To my 
knowledge, the Secretary has not reached out to the beef 
industry to ask for their input regarding any potential fix. I 
would rely back to my testimony. This is a failed experiment. 
In our opinion, it just needs to be repealed. We need to get 
rid of it.
    Mrs. Hartzler. So if we repeal COOL and the President signs 
the legislation into law, do you believe that would immediately 
end the threat of retaliation? Everybody.
    Ms. Dempsey. Yes. So then Canada and Mexico would not be 
WTO authorized to retaliate.
    Mrs. Hartzler. Right. Good. Okay, so back to Mr. Wenk and 
Mr. Smith. From the outset, many of us had concerns that a 
Country-of-Origin Labeling requirement would add cost to the 
processing and marketing of meat products, and it seemed that 
USDA shared those concerns, and in the 2009 final rule 
implementing COOL, USDA estimated that the first year 
implementation cost for growers, producers, processors, 
wholesalers and retailers would be $2.6 billion, and this was 
their original estimate. The rule also stated that the 
estimated economic benefits associated with the rule were 
``likely to be small.'' So they saw this coming.
    So to what extent have cattlemen and pork producers borne 
this cost?
    Mr. Smith. If you don't mind, I could start. I mean as a 
feeder and a packer, I will tell you that most of those costs 
right now are being borne within those two segments of the 
industry. Now, that is not to say that there are not additional 
costs associated with paperwork that occurs back at the ranch 
level, but the majority of those costs, in my opinion, have 
been absorbed in those two segments of the industry. And it is 
primarily just because of the sorting within pens, coolers, 
separate, as I mentioned, fabrication sets, labeling 
requirements, et cetera.
    Mrs. Hartzler. Is that passed on to the consumer? Have 
costs been passed on to the consumer as a result of this rule?
    Mr. Smith. A portion of those have, yes, ma'am. Some of 
them have been sent backwards, back through the production 
channel, and that is the reason that the Mexican Government and 
the Canadian Government are angry, because that negative 
economic signal is being sent to them in one direction in those 
direct costs, but then the indirect costs, the lack of 
production efficiencies because some of the difficulties we 
have, and some of the decisions our customers have made 
regarding whether they will carry two separate labels in their 
retail stores, those are indirect costs that the consumer 
bears.
    Mrs. Hartzler. Clearly, there is no upside to this. It is 
not good for America, it is not good for the producers, the 
processors, and it is not good for the mom that goes to the 
grocery stores having to pay more for products. And so we 
really do need to repeal it.
    Mr. Weber. I would pretty much agree with Mr. Smith's 
comments on that. If you just picture our industry. We have the 
processor in the middle that is really caught in the endgame in 
this thing, and they work on a margin, and I guarantee you they 
are going to pass those margins forward, and as much as they 
can, back to us as producers on the farm. And that is why I 
mentioned it is hard to actually know exactly what it is 
costing because that is exactly what happens; it spreads out 
through the economy. But there is no question that there is 
added cost with segregation of the product and distribution of 
the product. It becomes almost an impossible situation for 
them, and that is what has been passed down to us as producers. 
And so there are many costs involved.
    Mrs. Hartzler. Thank you.
    The Chairman. The gentlewoman's time has expired.
    We are within our time constraints, so we will move into 
round two. I have a question for you, Mr. Weber.
    The U.S. has imported millions of feeder pigs from Canada. 
These feeder pigs have been essential to help fully utilize 
pork producing capacity in the United States. For the record 
has, Mandatory Country-of-Origin Labeling had an effect on the 
availability of those feeder pigs?
    Mr. Weber. The feeder pigs are available, but the number of 
pigs willing to come into this country has been affected, and 
that is clearly the case that Canada--one of the topics that 
Canada has. I have fellow producers in my state that have been 
impacted by this because they haven't got a market for the 
Canadian pigs, and that occurred early on. So it is not a 
matter--to me it isn't an issue of availability. The pigs are 
available, there are still approximately 75,000 feeder pigs a 
week coming into this country, high-quality pigs. The issue at 
hand here is the retaliation that our industry is facing. We 
absolutely have to avoid retaliation. We have come through a 
very difficult marketing period in the pork industry. 
Obviously, with PED we had some high prices. Those prices are 
less than \1/2\ of that today. We are negotiating a major free 
trade agreement and we want to be represented as a country that 
lives up to its trade agreements, and so we just need to avoid 
this retaliation by WTO--or by Canada and Mexico.
    The Chairman. Thank you, Mr. Weber.
    Mr. Costa.
    Mr. Costa. Thank you again, Mr. Chairman.
    Both Mr. Smith and Mr. Weber, I believe, testified earlier 
that in the event of the adverse ruling that we have discussed, 
and retaliatory action is taken by Canada and Mexico, that the 
solution to this issue would be to repeal the law. With the 
exception of Mr. Johnson, do the other witnesses concur with 
Mr. Smith and Mr. Weber? You can nod your head.
    Voice. Absolutely, sir.
    Mr. Costa. Yes. There has been some discussion as an 
alternative, and I would like to get your reaction to it, if 
those course of events take place that we develop a North 
American label. And I would like to get your reaction to a 
North American label, and maybe we can begin with Mr. Johnson 
since I am certain you don't favor repealing it.
    Mr. Johnson. Thank you, Congressman. You are correct, we do 
not favor repealing it. We think actually that the best way to 
deal with this is to get the decision from the WTO----
    Mr. Costa. No, I understand that----
    Mr. Johnson.--and then----
    Mr. Costa.--but I am talking about in the event of an 
adverse decision----
    Mr. Johnson. Yes.
    Mr. Costa.--what is your thought on a North American label?
    Mr. Johnson. Well, we would initially be inclined to oppose 
a North American label, but----
    Mr. Costa. Okay.
    Mr. Johnson.--it is very important that you look at the 
actual decision, because we believe that there can be a very 
narrow fix that can be applied. Every WTO decision that has 
been made, there have now been three of them, has been narrower 
than the one before it.
    Mr. Costa. Okay.
    Mr. Johnson. We have every expectation the same thing would 
happen this time.
    Mr. Costa. Mr. Smith, would you care--Mr. Weber, or any 
other of the witnesses, to react to a North American label?
    Ms. Dempsey. I would just say that it is critical from our 
perspective and that of the COOL Reform Coalition that we 
eliminate the possibility of retaliation immediately. And so if 
we put ourselves in a situation of developing yet another 
legislative mandate that is viewed as WTO inconsistent, and 
until one sees the details of such a rule it is very difficult 
to expect that Canada and Mexico are going to wait in terms of 
the retaliation. First and foremost, and as Mr. Wenk testified, 
our coalition has looked for lots of other alternatives along 
the way to try to promote resolution of this, but at this 
point, time has run out----
    Mr. Costa. Mr. Wenk?
    Ms. Dempsey.--and so we need to see the----
    Mr. Costa. Yes.
    Ms. Dempsey.--repeal of this rule, and then if there is 
work that needs to be done with Canada and Mexico to figure out 
another solution, then so be it.
    Mr. Costa. Yes.
    Mr. Weber. I would agree with Ms. Dempsey fully in her 
comments that it----
    Mr. Costa. Mr. Smith, Mr. Wenk, do you care to comment?
    Mr. Smith. Congressman Costa, I would agree wholeheartedly 
as well, yes. I mean I don't think we have the luxury to 
propose another potential fix. We have tried that twice now. It 
has not worked. As I mentioned, the clock is ticking. Let us 
repeal it.
    Mr. Wenk. I completely concur. The reality is that we don't 
have a lot of time, Congressman, we are not in the driver's 
seat right now. We are days away from a final WTO ruling, so 
that is why it is urgent that Congress acts.
    Mr. Costa. All right. Thank you, Mr. Chairman. I yield back 
the balance of my time.
    The Chairman. I see we are now 10 minutes after 10:00, so 
we have about 10 minutes here.
    Mr. Newhouse, have any follow-up?
    Mr. Newhouse. Thank you, Mr. Chairman. Just one line of 
questioning perhaps we haven't explored yet.
    Certainly, we have talked about some of the negative 
impacts of retaliation, but are there other consequences of the 
U.S. being out of compliance with its trade obligations? And 
being out of compliance with WTO obligations, what does that do 
to the development of other opportunities perhaps in the 
marketplace internationally?
    Mr. Smith. I would offer just briefly. I mean that concept 
to do as I say, not as I do won't fly very well. It will pose 
astronomical challenges moving ahead, trying to negotiate any 
further trade agreement with any other countries.
    Ms. Dempsey. I would just say from the manufacturing 
perspective, we already face a lot of trade barriers overseas 
on which we are trying to get resolution. There is over $12 
trillion traded in manufactured goods worldwide, and the United 
States has nine percent of that. That world trade in 
manufactured goods is about three times the size of all 
consumption of manufactured goods in the United States. So if 
we are going to grow our economy, we need to do more. And so 
putting the United States out of its traditional leadership 
role in the world economy to make us a bad actor will tell the 
rest of the world that they can go ahead and impose additional 
barriers. And in a time that we are negotiating two big trade 
agreements to try to level the playing field, to try to have 
fair trade so we can get better access to the world's markets, 
this type of action and our continued lack of compliance with 
WTO rules is really costing our leadership.
    Mr. Weber. I would fully agree with those comments. We have 
to be portrayed as a respectable trading partner in these 
negotiations. And believe me, we are all aware of it in this 
room here, that market access is extremely difficult, and world 
trade is extremely competitive, and we have to be portrayed as 
a respectable trading partner.
    Mr. Wenk. I would just----
    Ms. Bodor. I would----
    Mr. Wenk.--add to what Ms. Dempsey said. We helped write 
the rules of the World Trade Organization, so we ignore those 
rules at our own peril. And it just doesn't make sense for us 
to ask other countries to follow the rules and that we don't 
have to follow those rules. And, there are many instances where 
we have brought cases against other countries for 
discriminatory practices they have brought against us, and most 
recently India, we brought a case against India in the WTO in 
terms of agriculture products. So if we expect other countries 
to abide by these rules, we need to do the same.
    Mr. Newhouse. Yes.
    Ms. Bodor. I would also add from a small business 
perspective, it increases the lack of confidence in putting 
forth the investment that it takes to open up these markets. So 
companies need to be sure that when they make that investment, 
that it is going to stay for the long-term. Now, for the 
confectionary industry, we are facing the second set of 
retaliatory duties in 10 years, and that makes it difficult for 
companies to go the next step to make the investment that is 
necessary if they don't believe that the marketplace will last.
    Mr. Newhouse. Okay.
    Mr. Johnson. If I could, I would argue that we also need to 
defend our position here. In the WTO proceedings, it was 
pointed out that some 70 countries who are members of the WTO 
have very similar Country-of-Origin Labeling rules. The WTO has 
never found against the law; they have found against how it was 
implemented. And so we ought to be precise about how we come 
into compliance, not simply throw out the law.
    Mr. Newhouse. Yes. I appreciate all your testimonies today.
    And again, thank you, Mr. Chairman.
    The Chairman. Thank you.
    Mrs. Hartzler.
    Mrs. Hartzler. Thank you, Mr. Chairman.
    Mr. Smith, I wanted to explore some other implications. We 
talked about economic cost, but in your opinion, do you believe 
that Mandatory Country-of-Origin Labeling has had an effect on 
consolidation within the beef cattle industry?
    Mr. Smith. That is a touchy issue, and I will need to tread 
lightly. I mean intuitively, it would suggest that it does have 
an impact on further consolidation. I mean let us be honest 
with one another, it is the large companies that have the 
economic wherewithal to implement procedures, purchase 
equipment, to come in compliance with some of these additional 
burdens that are placed on them, and smaller companies don't 
necessarily have that luxury. There is an indirect impact on 
consolidation as a result of some of these rules, yes, ma'am.
    Mrs. Hartzler. Makes sense. How has Country Origin of 
Labeling impacted the demand for Canadian cattle, and how could 
this impact the level of retaliation the U.S. will face if we 
lose the WTO appeal?
    Mr. Smith. Unfortunately, I don't have a lot of experience 
with Canadian cattle. We don't purchase Canadian cattle, but 
the symbolism would be the same and we do purchase quite a few 
cattle of Mexican origin.
    Mrs. Hartzler. Yes.
    Mr. Smith. So it will pose some challenges. I mean if those 
retaliations go into play, it could make it more difficult to 
be able to source the live animals that are necessary to be 
brought into the production system.
    Mrs. Hartzler. Okay. Ms. Bodor, we share your concerns if 
the U.S. loses its appeal, Canada and Mexico may take 
retaliatory actions against confectionary exports. So do you 
have an estimate of the economic damage this could cause your 
industry if we fail to repeal Mandatory Country-of-Origin 
Labeling for meat?
    Ms. Bodor. For confectionary on the tariff codes that 
Canada has already identified, we believe we will lose those 
exports. At 100 percent duty, we cannot export those products 
into Canada.
    As I mentioned earlier, when we faced a 20 percent duty on 
these products in Mexico, we lost 50 percent of our exports. So 
100 percent is really unlikely that we would be able to 
recover. And then we would also--because there are competitors 
who are willing to jump in from Europe and from China, from 
other marketplaces--we would be put in the position of having 
to crawl back and try and regain that market share, and that 
takes a long time.
    Mrs. Hartzler. Okay. Years.
    Ms. Bodor. Yes.
    Mrs. Hartzler. Very serious. Thank you very much.
    I yield back, Mr. Chairman.
    The Chairman. Thank you. I want to thank each of our 
witnesses for appearing today, and I appreciate your testimony 
very much.
    Just a closing comment from myself. I have observed over a 
long period of time that our trade agreements are incredibly 
important to growing the economy here in the United States, 
particularly important for agriculture, our poultry and pork 
industries specifically as it relates to my district. And it is 
also my experience that in all these trade negotiations, past, 
present and future, everybody around the world has an axe to 
grind, no use in giving them another axe.
    And with that, let me adjourn the hearing. Under the rules 
of the Committee, the record of today's hearing will remain 
open for 10 calendar days to receive additional material, and 
supplementary written responses from the witnesses to any 
question posed by a Member.
    This Subcommittee on Livestock and Foreign Agriculture 
hearing is now adjourned.
    [Whereupon, at 10:17 a.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
Supplementary Material Submitted by Roger Johnson, President, National 
                             Farmers Union
    Many of my colleagues on the panel testified in favor of repealing 
the Country-of-Origin Labeling (COOL) law. Canadian Minister of 
Agriculture and Agri-Food Gerry Ritz has called for full repeal of the 
law, as have several Members of Congress and interest groups.
    Repealing the law would remove origin labels from ground and muscle 
cuts of beef, lamb, and pork. It would also remove origin labels from 
fish and shellfish, peanuts, fresh and frozen fruits and vegetables, 
goat meat, chicken, pecans, macadamia nuts, and ginseng. Beyond the 
ground and muscle cuts of beef, lamb, and pork, all other covered 
commodities are beyond the scope of the World Trade Organization (WTO) 
dispute. The WTO dispute only applies to muscle cuts of beef, lamb, and 
pork. Full repeal of the COOL law would remove an important piece of 
information that consumers have time and time again indicated they want 
to know--the country-of-origin. National Farmers Union would also 
oppose removing beef, pork, and lamb from the scope of the law. These 
labels have been around since the 1890s in one form or another. 
Consumers have the ability to determine where every piece of their 
automobile originated or where their T-shirt was made. As consumers 
become more and more interested in the food system and where and how 
their food was produced, it only makes sense to affix an origin label 
on food. The labels are common sense and applied throughout every 
industry.
    Because the WTO has narrowed the scope of noncompliance of the 
regulations with each subsequent ruling, Congress should wait to see 
what the WTO Appellate Body reports before suggesting any changes to 
the law. The Appellate Body may find the U.S. is compliant or it may 
identify a very simple fix to the type of label or labels that would 
give Congress direction should any legislative change be required.
                                 ______
                                 
Submitted Statement by Hon. Rod Blum, a Representative in Congress from 
                                  Iowa
    I wish to thank the House Committee on Agriculture, particularly, 
Chairman Conaway and Ranking Member Peterson, as well as Livestock and 
Foreign Agriculture Subcommittee Chairman Rouzer and Ranking Member 
Costa for permitting me the opportunity to submit these remarks and 
express my ongoing concerns on behalf of my constituents in the First 
District of Iowa. I appreciate the willingness of the Committee to 
explore legislative solutions for the issues that implementation of the 
mandatory Country-of-Origin Labeling (COOL) presents to agriculture.
    As the Committee is aware, COOL is a product from the 2002 Farm 
Bill which requires labeling of fresh beef, pork, and lamb but exempts 
processed meats and food items. However, this provision has been 
challenged by Canada under the authority of the World Trade 
Organization (WTO), which was subsequently appealed by the U.S.
    Unfortunately, the WTO is likely to rule against our appeal of 
their decision that implementation of COOL constitutes a trade barrier 
for our closest trading partners, Canada and Mexico. This decision 
permits our friends and partners to institute retaliatory tariffs on 
U.S. products.
    I feel this outcome is most unfortunate. The First District of Iowa 
is home to a great number of agricultural producers that are either 
directly affected by COOL, or used as ingredients in the expanded list 
of products that are threatened with these tariffs. Implementation of 
these measures would have a severe negative impact on producers, their 
livelihoods, the employees, and directly and indirectly related 
businesses.
    Additionally, to date, only Canada has made public their intentions 
regarding the WTO decision. Mexico has yet to release a retaliatory 
tariff list, so this terrible situation might be of even a greater 
magnitude than the industry anticipates.
    I commend the Committee for beginning the legislative process in 
order to properly address these concerns before these tariffs begin to 
negatively affect producers in my district and across the country. I 
remain hopeful that Congress, along with consultation from U.S. 
Secretary of Agriculture Vilsack, can come to an agreement on 
legislation that satisfies the requirements of the WTO and avoid 
disruptions to the economic trade between the U.S., Canada, and Mexico.
                                 ______
                                 
 Submitted Letter by Brad Figel, Vice President, Public Affairs, Mars, 
                              Incorporated
March 25, 2015

  Hon. K. Michael Conaway,
  Chairman,
  House Committee on Agriculture,
  Washington, D.C.

RE: Subcommittee on Livestock and Foreign Agriculture's hearing to 
            examine the implications of potential retaliatory measures 
            taken against the United States in response to meat 
            labeling requirements

    Dear Chairman Conaway:

    On behalf of Mars, Incorporated (``Mars''), we appreciate the 
opportunity to submit comments to the House Agriculture Subcommittee on 
Livestock and Foreign Agriculture's hearing to examine the implications 
of potential retaliatory measures taken against the United States in 
response to meat labeling requirements.
    As a U.S.-based company with international operations, it is very 
important to Mars that Congress immediately resolve the issue of the 
current U.S. country-of-origin labeling (``COOL'') requirements in 
dispute in the World Trade Organization (``WTO''), as the United States 
has less than 60 days to take action before the WTO makes its final 
decision on whether these measures are in violation of international 
trade rules. If this matter is not resolved, we are deeply concerned 
about the prospect of impending retaliation by Canada and Mexico. 
Retaliation will have a devastating, broad economic effect on American 
families and a wide range of companies, including ours.
    We are extremely proud that Mars is a family-owned, U.S.-based 
company that has invested in our economy and communities since 1911. As 
a leading food company, we have more than 26,000 associates in the 
United States and more than 75,000 Associates worldwide. Our company 
includes six business segments: Petcare, Chocolate, Wrigley, Food, 
Drinks, and Mars Symbioscience, and we generate more than $33 billion 
in annual revenue.
    Mars is very concerned about the possible retaliatory actions of 
Canada and Mexico because we anticipate that they will have a direct 
economic impact on our business. On its draft retaliation list, Canada 
included finished products and agricultural commodities and materials 
relevant to our business. Mexico has not yet announced its retaliation 
list, which has caused greater uncertainty with respect to our cross-
border operations.
    To avoid retaliatory actions by Mexico and Canada, Mars has been a 
constructive player and leader in seeking a resolution to resolve this 
issue. We continue to be a highly active member of the COOL Reform 
Coalition, which has worked since last year to ensure that the United 
States complies with its WTO obligations. In fact, the Coalition 
proposed and advocated for several approaches to resolve this issue.
    Given the United States' position as a global leader and a major 
exporter, including of agricultural goods, it is critically important 
that we remain a good actor in complying with our WTO obligations. U.S. 
food and agricultural producers depend on exports, and agricultural 
exports support over one million U.S. jobs on and off the farm. If the 
United States does not demonstrate its commitment to international 
trade rules by adhering to them, how can we expect other countries, 
whose markets we depend on for our exports, to comply with the rules? 
For Mars and other companies that support U.S. jobs by manufacturing in 
and exporting from the United States, access to other markets often 
depends on our trading partners' compliance with WTO rules.
    Further, the United States' credibility on global trade issues 
carries particular significance when we are actively negotiating new, 
far-reaching agreements--the Trans-Pacific Partnership and Trans-
Atlantic Trade and Investment Partnership agreements--and at the same 
time, seeking to reauthorize Trade Promotion Authority. We cannot 
afford to send a message that the United States will not abide by and 
implement its international trade obligations.
    The United States also has a responsibility to protect its 
important trading relationship with Canada and Mexico. Many businesses, 
including ours, rely on the open market that the North American Free 
Trade Agreement created for U.S. exports. We can and should avoid 
retaliatory tariffs by fully complying with the panel and Appellate 
Body reports through the repeal of the current COOL requirements for 
muscle cuts of meat. Therefore, we support prompt Congressional action 
that brings the United States into compliance with its WTO obligations 
related to COOL. Once again, we thank you for the opportunity to 
comment.
            Sincerely,

Brad Figel,
Vice President, Public Affairs,
Mars, Incorporated.
                                 ______
                                 
Submitted Letter by Ben Mosely, Vice President, Government Affairs, USA 
                            Rice Federation
March 25, 2015

  Hon. David Rouzer,
  United States House of Representatives,
  Washington, D.C.

    Dear Congressman Rouzer:

    The USA Rice Federation appreciates the opportunity to submit a 
written statement regarding today's Livestock and Foreign Agriculture 
Subcommittee's hearing on Meat Labeling Requirements. USA Rice is the 
global advocate for all segments of the U.S. rice industry with a 
mission to promote and protect the interests of producers, millers, 
merchants and allied businesses. USA Rice is made up of the USA Rice 
Producers' Group, the USA Rice Millers' Association, the USA Rice 
Council and the USA Rice Merchants' Association.
    USA Rice members and our customers in Canada and Mexico--two of the 
top five export markets for U.S. rice--are vitally concerned over 
possible retaliation against exports of U.S. rice if the United States 
is found, once again, to be out of compliance with its international 
obligations in the World Trade Organization (WTO). USA Rice is a strong 
supporter of WTO compliance and requests that Congress and the 
Administration take steps necessary to reform the Country-of-Origin 
Labeling (COOL) rule, thereby avoiding massive retaliation threatened 
against our industry by Canada and Mexico.
    The Country-of-Origin Labeling rule pertains to mandatory labeling 
on muscle cuts of meat, detailing the country in which the animal was 
born, raised, and slaughtered on all meat sold in the United States. 
Canada and Mexico have consistently opposed this rule, stating that it 
unfairly discriminates against meat originating or being processed 
within their borders. After filing a dispute claim with the WTO in 
2012, and then again in 2013, WTO panels have time and again agreed 
that the COOL rule violates the U.S.'s international trade obligations.
    Canada and Mexico are planning to retaliate against COOL by 
introducing tariffs on a number of goods produced in the United States. 
Canada has released its retaliation list, and it heavily penalizes U.S. 
agriculture, including a 100 percent import tariff on rice. While 
Mexico, which is the United States' number one rice export market, has 
not released a retaliation list, there is every reason to believe that 
rice will make an appearance there as well. Import tariffs on U.S. rice 
would seriously threaten the U.S. dominant market share in these two 
vital export markets.
    Losing two markets among the top five for U.S. rice would cause 
serious economic harm in the six rice producing states: Arkansas, 
Louisiana, Texas, Missouri, Mississippi and California. On average, the 
U.S. rice industry exports $350 million in product to Mexico and $177 
million to Canada yearly. This accounts for a full quarter of our 
exports to world markets. With final adjudication due out this spring, 
Canada and Mexico may be allowed to retaliate as early as later this 
year. The longer we remain out of compliance, however, the longer we 
are threatening real commercial harm to U.S. exports. Keeping the COOL 
rule on the books as it is and allowing this retaliation to occur will 
result in reported damages to U.S. exports of an estimated $1 billion 
to over $2 billion.
    The USA Rice Federation strongly supports coming into compliance 
with our WTO obligations. We do not have a position on the future 
construction of a COOL regulation, only that such regulation be 
compliant with our international obligations, and not have a negative 
impact on our and other agricultural industries' exports.
    We appreciate the opportunity to have our statements entered into 
the record. Please have your staff contact me at [Redacted] or 
[Redacted] for any additional assistance.
            Sincerely,
            
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
            
Ben Mosely,
Vice President, Government Affairs.

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