Canada Preparing to Impose a 100 % Surtax on Imports From the United States
The Canadian government has announced that it is considering the application of a 100 % retaliatory surtax on selected goods imported from the United States.1 The proposed surtax is Canada’s response to the failure of the United States to implement World Trade Organization (WTO) rulings that held that U.S. Country of Origin Labelling (COOL) requirements under the 2008 Farm Bill (Bill)2 violate their WTO obligations by discriminating against Canadian (and Mexican) livestock. Public consultations are ongoing, and companies that rely on imports of the targeted products should be taking immediate steps to ensure they are not sideswiped by Canada’s retaliatory measures.
What Are COOL Requirements?
Meat labelling in the United States is a very controversial issue for the Canadian cattle and hog industry. The Bill requires most U.S. retailers to inform consumers about the country of origin of ground and muscle cuts of beef, pork, lamb, chicken and goat. Other U.S. laws have required such labelling, but only for imported food products already prepackaged for consumers.
Canada’s Challenge at the WTO
The implementation of COOL by the U.S. Department of Agriculture (USDA) was challenged by the Government of Canada at the WTO, particularly in regard to the labelling rules for meat and meat products. The Government of Canada, supported by Canadian livestock exporters, argued that the requirements were discriminatory and trade-distorting by reducing the value and number of cattle and hogs shipped to the United States. The WTO Appellate Body (WTOAB) agreed and ruled in June 20123 that COOL requirements treat imported cattle and hogs less favourably than like domestic livestock. But the WTOAB also held that COOL does constitute a legitimate objective on the part of the United States – namely to provide complete information to consumers on the origin of meat products.
The United States was given until May 2013 to bring its COOL requirements into compliance with its WTO obligations. In an effort to comply, on May 23, 2012, the United States introduced changes and issued a final COOL rule requiring that labels show where each production step (i.e., born, raised, slaughtered) occurs and prohibiting commingling of muscle cut meat from different origins.4
However, Canada disagreed with the United States claims that the changes brought COOL into compliance with WTO commitments and has taken the position that they expand labeling requirements and increase the discriminatory nature of these measures. Accordingly, on August 20, 2013, Canada requested the establishment of a compliance panel to determine if the final COOL rule complies with the WTO findings. If it is determined that these changes do not comply with the WTO findings, Canada is free to request authority from the WTO to retaliate to a level equivalent to damages resulting from COOL requirements.
Retaliatory Measures Against Imports From the United States
In this case, Canada has announced that retaliation would take the form of a 100-% surtax on selected products imported from the United States. Should COOL case reach the retaliation state, the damage claims could range between $1 billion and $2 billion. According to the Canadian Pork Council, COOL causes damages of $500 million per year to the Canadian hog industry,5 while the Canadian cattle industry has estimated its annual losses from COOL to be $639 million.6
Canada’s announcement is accompanied by a list of products the Canadian government proposes to target with this retaliatory surtax. Generally speaking, the targets are imports from the United States that have been strong supporters of COOL requirement.
Affected companies are encouraged to carefully review the list of targeted and prepare their submissions to the Government of Canada as further discussed below.
The Canadian government has proposed that the following groups of products be subject to a 100 % surtax:
- live bovine and swine, as well as meats;
- apples, cherries, corn (maize) and potatoes;
- glucose and glucose syrup;
- fructose and fructose syrup;
- chocolate and food preparations containing cocoa;
- pasta (including pasta cooked or stuffed with meat and other products);
- prepared foods obtained from cereals, including breakfast cereals;
- bread, pastry, cakes and biscuits;
- frozen orange juice;
- tomato ketchup and other tomato sauces;
- spirits and ethyl alcohol;
- peptones and their derivatives;
- protein substances;
- articles of jewellery and parts thereof, of precious metal;
- tubes, pipes and hollows;
- parts of kitchen appliances, such as stoves, grates, cookers, barbecues;
- grinding balls;
- swivel seats;
- wooden office furniture; and
For Canadian importers and manufactures impacted by the proposed retaliation, public consultations represent an opportunity to make submissions on which products should and should not be subject to the surtax. It may be possible to affect the final decision as to the choice of appropriate target imports for the surtax by, for example, arguing that applying the surtax to a particular target would do more harm to Canadian interests than to U.S. exporting interests.
To view a copy of the Notice published in the Canada Gazette, as well as a list of the specific products and their tariff classification numbers, please see: www.gazette.gc.ca/rp-pr/p1/2013/2013-06-15/html/notice-avis-eng.html.
Comments should be submitted in writing to COOL Retaliation Consultations, International Trade Policy Division of the Department of Finance as soon as possible.
Companies that import the targeted products from the United States will want to consider filing submissions if it will be difficult for them to find satisfactory alternative suppliers or to pass on the doubling of input cost to their customers. Further, some Canadian manufacturers might find it to their advantage to argue in favour of the surtax applying to competitive imports.
1 Department of Finance Notice seeking comments on possible trade retaliation action against the United States in response to its failure to comply with the World Trade Organization findings on certain country of origin labelling requirements. Canada Gazette, Part I, June 15, 2013, page 1459.
2 2002 Farm Bill, (P.L. 107-171, as amended by the 2008 Farm Bill (P.L. 110-246).
3 United States-Certain Country of Origin Labelling (COOL) Requirements AB-2012-3WT/DS384/AB/R/WT/DS386/AB/R, 29 June 2012.
4 USDA, AMS, Mandatory Country of Origin Labeling of Beef, Pork …, 78 Federal Register 31367, May 24, 2013. The rule amends 7C.F.R. 60.124, 65.240 and 65.300.
5 Canadian Pork Council, CPC Releases Report on COOL Damages to Canada’s Pork Industry, press release, January 14, 2013.
6 Dan Sumner, Canadian Losses from U.S. COOL Implementation, prepared for Canadian Cattlemen’s Association, September 27, 2012.