After months of fruitless talks with the Obama administration, Canada wants the World Trade Organization to settle a dispute over a new U.S. food-labelling law that threatens tens of millions of dollars worth of Canadian hog and cattle exports.
Trade Minister Stockwell Day said yesterday that he has asked a WTO dispute settlement panel to determine whether U.S. country-of-origin labelling rules impose "unfair and unnecessary" costs on Canadian farmers.
"The U.S. [country-of-origin labelling]requirements are so onerous that they affect the ability of our cattle and hog exporters to compete fairly in the U.S. market," Mr. Day said.
The U.S. law, he said, leaves the Canadian government with "no choice" but to escalate its first formal trade dispute with the Obama administration.
The list of Canadian trade grievances has since grown to include "Buy American" government purchasing rules and generous U.S. biofuel tax breaks for paper producers. The two countries are also sparring off and on about softwood lumber, with the U.S. recently winning a key ruling that Canada was skirting a 2006 agreement limiting shipments to the United States.
Exporters warn that such rules are conspiring to make the Canada-U.S. border thicker, undermining long-standing ties within integrated industries.
As for the labelling rules, U.S. officials counter that country-of-origin regulations are common around the world.
"Countries have agreed since long before the existence of the WTO that country-of-origin labelling is a legitimate policy," U.S. Trade Representative Ron Kirk and Agriculture Secretary Tom Vilsack said in a joint statement yesterday.
The U.S. labelling law requires American companies to track and notify customers as to the country of origin of meat and other agricultural products at each major stage of production, including at the retail level.
The United States made some changes to its rules to alleviate Canadian concerns. But Ottawa said the rules are still causing confusion and uncertainty, prompting major U.S. processors to shun Canadian imports.
Ottawa initiated formal consultations with the United States in May, and Mr. Day had said in July that he was confident the issue could be settled without turning to the WTO. Once a WTO dispute resolution panel is set up, a ruling typically takes nine months. But appeals could keep the case going for years.
The labelling law has already prompted several major U.S. pork producers, including Cargill Inc., JBS SA, Hormel Foods Corp., Seaboard Corp. and Smithfield Foods Inc. to stop buying Canadian hogs or gradually phase out purchases. The five companies account for more than half of all pork sold in the United States.
Exports of hogs to the United States, for example, have tumbled roughly 60 per cent so far this year.
Young animals are often shipped to the U.S. for fattening and slaughter. But segregating the Canadian animals from domestic ones is costly and inefficient.
The U.S. law allows producers a range of labelling options, including stamping labels on the meat from these cross-border animals as "product of the United States and Canada."
In addition to livestock imports, the labelling law could also affect a broad range of Canadian processed meat exports, including bacon and sliced sandwich meats.
The U.S. Department of Agriculture estimates that it will cost the food industry $2.5-billion (U.S.) to comply with the new rules.
U.S. processors are simply choosing not to buy in Canada, rather than dealing with the cost and complexity of the rules, according to Canadian pork producers. Instead they're buying from U.S. farmers.
Roughly 7 per cent of the pork consumed in the U.S. comes from Canada, keeping several U.S. processing plants in business.
While opposed by most U.S. processors, the labelling law enjoys strong support among farmers, consumer groups and several influential members of Congress, who argue that Americans have a right to know where their food comes from.
Momentum to pass the law followed a series of food scares - many of them domestic - that have heightened public worries about food safety.
But Canadian hog producers aren't just battling the U.S. labelling rules. The industry has been devastated by the high Canadian dollar, a spike in feed costs, and swine flu fears. Ottawa has offered a bailout package for farmers, who say they are losing $30 to $40 (Canadian) for every hog they produce.