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WTO disputes

United States - Certain Country of Origin Labelling (COOL) Requirements - (WT/DS384 and WT/DS386)

Third Party Written Submission of Australia Executive Summary

7 September 2010

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United States - Certain Country of Origin Labelling (COOL) Requirements - (WT/DS384 and WT/DS386) - Third Party Written Submission of Australia Executive Summary [PDF 39 KB]

I. Introduction

  1. The US country of origin labelling requirements (the "COOL measure")
    at issue in these proceedings raise significant systemic issues concerning
    the legal obligations and rights of WTO Members under the Agreement on Technical
    Barriers to Trade (TBT Agreement) and the General Agreement on Tariffs and
    Trade 1994 (GATT 1994).

II. The Measure at Issue

  1. Canada and Mexico have broadly identified the measure at issue to encompass
    the 2008 Interim Final Rule and the Vilsack Letter1
    in addition to the 2009 Final Rule and the 2002 COOL Statute, as amended.
    Mexico has also included the Food Safety and Inspection Service Interim Rule.
    The COOL measure thus identified covers many commodities and affects every
    stage of the supply chain. Relevantly (given Australia's large exports of
    muscle cuts and manufactured ground beef), Australia notes ground beef (along
    with other ground meats) is subject to very particular COOL requirements under
    §65.300(h) of the 2009 Final Rule.
  2. Australia disagrees with the US contention that Canada and Mexico have failed
    properly to identify the measure at issue because they have not addressed
    the WTO consistency of all elements of the COOL measure. In this regard, Australia
    notes the Panel's statement in EC-Sardines that a complaining party
    may elect to "identify and challenge only those offending provisions
    of the measure it deems central to its interest in resolving the dispute".2
  3. Like Canada and Mexico, Australia also regards the Vilsack Letter as a measure
    which can be challenged in WTO dispute settlement proceedings. It is an act
    directly attributable to the executive of a WTO Member. The Vilsack Letter
    is an official document that sets out the official position of the US Department
    of Agriculture as mandated by the Secretary of the Department and is characterised
    by the Secretary as representing the will of the US Congress.

III. The Agreement on Technical Barriers to Trade

A. Definition of Technical Regulation

  1. Australia considers the COOL measure meets the three criteria identified
    by the Appellate Body in EC - Asbestos required to fall within the
    definition of a "technical regulation" under Annex 1 of the TBT
    Agreement3, as it relates to named "covered
    commodities", provides for labelling requirements (as referred to in
    the definition of a technical regulation in Annex 1), and is of binding or
    compulsory nature.
  2. Australia notes Mexico directly addresses the mandatory nature of the Vilsack
    Letter. The United States challenges Mexico's characterisation of the letter
    as mandatory. In Australia's view, Mexico is correct in asserting that how
    the US Department of Agriculture characterises the Vilsack Letter should not
    be determinative of its character. Instead, a critical question for the Panel
    is whether industry views this letter as mandating action.

B. Article 2.1 of the TBT Agreement

  1. There is limited direct guidance from WTO Panel and Appellate Body Reports
    on the application of Article 2.1 of the TBT Agreement. However, Australia
    believes the Panel can be informed by the interpretation of the phrases "like
    product" and "treatment no less favourable" in GATT Article
    III:4.
  2. Australia notes the US argument that Canada and Mexico's "like product"
    analysis is deficient because the subject of the COOL measure is meat and
    not livestock. Australia disagrees with this interpretation and believes Article
    2.1 should be applied to country of origin labelling requirements, so as to
    encompass "like products" that, at whatever point of the supply
    process, are required to be identified for the purposes of labelling the end
    product. In other words, the application of the COOL measure to all early
    stage products, whether livestock, muscle cuts or beef trimmings used in ground
    beef, should be subject to Article 2.1.
  3. In Australia's view, both Canada and Mexico have clearly established that
    live cattle, and in the case of Canada, live hogs, are "like products"
    to US live cattle and hogs.
  4. Australia also submits that imported beef trimmings used for processing
    or grinding into ground beef in the United States are like products to domestic
    (US) beef trimmings. Imported beef trimmings have the same properties, nature
    and quality as the US product, and the same end uses as US beef trimmings,
    as both are processed into ground beef. Finally, Australia also notes that
    imported beef trimmings and US beef trimmings that are processed into ground
    beef are classified under the same subheading 0201 and 0202 under the Harmonised
    System of Tariff Classification.
  5. The objective of the "treatment no less favourable" requirement
    is to provide "equality of opportunities" for imported goods.4
    As part of this analysis, it is necessary to examine whether the COOL measure
    "modifies the conditions of competition in the relevant market to the
    detriment of imported products".5
  6. On its face, the COOL measure provides for formally identical treatment
    of imported product as the same requirements to identify the origin of the
    product apply equally to domestic product. However, the COOL measure has the
    potential to accord different treatment to imported product that amounts to
    less favourable treatment within the meaning of Article 2.1 of the TBT Agreement
    because it results in additional operational costs on imported product.
  7. Australia does not object to identifying imported product on labels and
    does not agree with Mexico's claim that country of origin labelling measures
    "are inherently protectionist and discriminatory".6
    As the United States submits, "there is nothing about country of origin
    labelling that is inherently unfavourable to imported products".7
    At times it may even favour imported product. Australia maintains its
    own mandatory country of origin labelling requirements and as an exporter
    of many products to countries with country of origin labelling requirements
    seeks to ensure such requirements do not hinder international trade. Australia
    notes many WTO Members maintain country of origin labelling requirements.
  8. However, Australia agrees with Mexico's claim that the COOL measure discriminates
    "by virtue of its design, structure and application".8
    Australia's concerns focus on the higher cost burdens the requirements place
    on the use of imported product throughout the chain of supply. The COOL requirements
    applicable to ground beef are an example of such de facto discrimination,
    as labelling of all possible countries of origin in accordance with the 60
    day inventory allowance could distort the market in favour of domestic product
    and is likely to result in discrimination against imported product.
  9. Should the Vilsack Letter be found to be a "technical regulation",
    Australia agrees with Canada's assessment that the effect of the labelling
    practices in the letter "would severely curtail the ability to commingle
    meat from various countries of origin".9
    Both production step labelling and extending coverage to processed meats would
    impose higher costs where imported product is used. Further, a reduction in
    the ground meat inventory allowance to 10 days as set out
    in the Vilsack Letter (from the 60 day requirement contained in the 2009 Final
    Rule) would reduce the minimal flexibility currently available to processors.
    There would be a corresponding increase in compliance costs relating to traceability,
    record keeping and packaging or other forms of labelling as labels would have
    to be changed more frequently.

C. Article 2.2 of the TBT Agreement

  1. Article 2.2 of the TBT Agreement grants Members the right to adopt technical
    regulations for the purpose of fulfilling legitimate objectives. Australia
    submits the correct analysis under Article 2.2 involves examination of:
    1. whether the objective of the measure at issue is a legitimate objective;
    2. whether the measure at issue is more trade-restrictive than necessary
      to fulfil a legitimate objective, which in turn involves an assessment
      of:
      • whether the measure is trade-restrictive;
      • whether the measure is to fulfil a legitimate objective; and
      • whether there are other reasonably available alternatives that may
        be less trade-restrictive while still fulfilling the legitimate objective
        at the level of protection the Member considers appropriate; and
    3. the risks non-fulfilment [of the legitimate objective] would create.
  2. Firstly, Australia submits that an examination of the legitimacy of an objective
    is confined to an examination of whether the objective put forward by the
    respondent is legitimate within the meaning of Article 2.2. The text of Article
    2.2 provides that legitimate objectives include, among other things, the prevention
    of deceptive practices and the protection of human health and safety. Article
    2.2 does not expressly restrict what might be legitimate objectives; the list
    is not exclusive. The United States has put forward the provision of consumer
    information so as to minimise consumer confusion as the legitimate objective
    of the COOL measure.10 Australia regards enabling
    consumers to identify the source of a product a legitimate objective for the
    purposes of Article 2.2.
  3. Second, Australia considers that Article 2.2, in requiring that a challenged
    measure must be necessary "to fulfil a legitimate objective", means
    that the measure must fulfil or at least have the capacity to fulfil, the
    legitimate objective. The relevant question in this dispute is whether the
    COOL measure does carry out, or has the capacity to carry out, its stated
    objective of providing accurate additional consumer information.
  4. In Australia's view, Canada has identified aspects of the COOL measure that
    do not appear to achieve that stated objective, particularly in the labelling
    of ground beef.11 In some respects, the COOL
    measure can in fact result in misleading and inaccurate information. In particular,
    the 60 day inventory allowance could result in inaccuracy, as the label could
    identify the origin of products not in fact used in the ground beef.
  5. Third, as noted by Canada and Mexico, GATT disciplines on the use of restrictions
    are meant to protect not "trade flows", but rather the "competitive
    opportunities of imported product".12 Trade-restrictive
    measures therefore include those that impose any form of limitation, discriminate
    against or deny competitive opportunities to imported product. In Australia's
    view, the COOL measure limits trade by imposing recordkeeping and segregation
    costs which are likely to be greater when imported product is used and thus
    impact on the competitive opportunities of imported product.
  6. Australia notes that elements of the "necessity" analysis developed
    under GATT Article XX are similar to the elements contained in the language
    of Article 2.2 of the TBT Agreement. Applied to Article 2.2, establishing
    the necessity of the trade-restrictive elements of the COOL measure may require
    consideration of the extent to which the trade-restrictive elements make a
    contribution to the legitimate objective or contribute to the realisation
    of the end pursued: the greater the contribution the more easily the trade-restrictive
    elements of the measure might be considered necessary.13
  7. Thus, with respect to ground beef, the COOL measure does not appear to fulfil
    its objective and further, may be more trade-restrictive than necessary given
    the reasonable availability of other alternatives.
  8. One possible alternative would require labels to identify "domestic"
    or "imported" product (without specifying the particular country
    of origin). This greater flexibility would enable processors to use imported
    product without needing to segregate product by country of origin or adjust
    recordkeeping practices to avoid financial penalties under the COOL measure.
  9. In summary, Australia considers that the trade-restrictive aspects of the
    COOL measure are not necessary to fulfil the stated objective of providing
    accurate consumer information and that the objective of providing consumer
    information could be fulfilled by the less trade-restrictive alternative for
    ground beef outlined above.

D. Article 2.4 of the TBT Agreement

  1. Mexico identifies the Codex General Standard for the Labelling of Prepackaged
    Foods
    ("CODEX-STAN 1-1985") prepared by the Codex Commission
    as a "relevant" international standard upon which the COOL measure
    should be based. Australia queries whether the purpose of the CODEX-STAN 1-1985
    is relevant or bears upon the COOL measure, which is not intended directly
    to address misleading or deceptive labelling practices (though it may complement
    such practices).
  2. In the alternative, should the Panel find that CODEX-STAN 1-1985 is a relevant
    standard that should have provided the basis for the COOL measure, Australia
    considers that CODEX-STAN 1-1985 is unlikely to be effective or appropriate
    in all cases to fulfil the legitimate objective of providing accurate consumer
    information.

IV. The General Agreement on Tariffs and Trade (GATT 1994)

  1. Australia notes the three elements that must be satisfied to establish a
    violation of GATT Article III:4: that the imported and domestic products are
    "like products"; that the measure at issue is a "law, regulation,
    or requirement affecting their internal sale, offering for sale, purchase,
    transportation, distribution, or use"; and that the imported products
    are accorded "less favourable treatment" than that accorded to like
    domestic products.14
  2. As under Article 2.1 of the TBT Agreement, Australia considers that the
    COOL measure has the potential to impose higher cost burdens on the use of
    imported product throughout the chain of supply and therefore provides less
    favourable treatment to imported product contrary to Article III:4 of GATT
    1994.

V. Conclusion

  1. In Australia's view, contrary to the national treatment obligations in Article
    2.1 of the TBT Agreement and Article III:4 of GATT 1994, the COOL measure
    has the potential to detrimentally affect the conditions of competition so
    as to discriminate against imported product, resulting in treatment less favourable
    for such products.
  2. Furthermore, Australia believes the COOL measure is inconsistent with the
    obligation set out in Article 2.2 of the TBT Agreement, in that the trade-restrictive
    nature of the COOL measure is not necessary to fulfil its objective of providing
    accurate consumer information, given less trade-restrictive and reasonably
    available alternatives, including that identified by Australia in relation
    to ground beef.
  • 1 US Secretary of Agriculture Thomas J. Vilsack's letter to Industry Representatives dated 20 February 2009.
  • 2 Panel Report, EC - Sardines, para 7.34.
  • 3 Appellate Body Report, EC - Asbestos, paras 66-70, cited also in Appellate Body Report, EC-Sardines, para 176. See Canada's First Written Submission, paras 71-74 and Mexico's First Written Submission, paras 238260.
  • 4 US - Section 33 7 of the Tariff Act, para 5.11: see Canada's First Written Submission, paras 87 and 88 and Mexico's First Written Submission, para 217, with reference to the Appellate Body Report, Korea - Various Measures on Beef, para 137 and Appellate Body Report, Dominican Republic - Import and Sale of Cigarettes, para 93.
  • 5 Appellate Body Report, Korea - Various Measures on Beef, para 137.
  • 6 Mexico's First Written Submission, para 5.
  • 7US' First Written Submission para 141.
  • 8 Mexico's First Written Submission, para 5.
  • 9 Canada's First Written Submission, para 28.
  • 10 US' First Written Submission, para 206. The United States notified the "objective and rationale" as "consumer information" in its amended Notification to the Committee on Technical Barriers to Trade: G/TBT/N/USA/281/Add.1, 7 August 2008.
  • 11 Canada's First Written Submission, paras 178-180.
  • 12 Canada's First Written Submission, para 184 and Mexico's First Written Submission, para 306 citing Panel Report, EC - Bananas III (Article 21.5 - Ecuador II), at para 7.330 and Panel Report, EC - Bananas III (Article 21.5 - US), at para 7.677
  • 13 Appellate Body Report, Korea - Various Measures on Beef, paras 160-163.
  • 14 Appellate Body Report, Korea - Various Measures on Beef, para 133.

Last Updated: 12 August 2014
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