VZCZCXRO9652
PP RUEHGA RUEHHA RUEHMT RUEHQU RUEHVC
DE RUEHOT #0160/01 0631913
ZNR UUUUU ZZH
P 041913Z MAR 09
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC PRIORITY 9160
INFO RHEHAAA/WHITE HOUSE WASHDC
RUEHRC/USDA FAS WASHDC 1000
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHME/AMEMBASSY MEXICO 1932
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 OTTAWA 000160 
 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR WHA/CAN 
 
STATE PASS USTR (SULLIVAN) 
 
COMMERCE FOR ITA/MAC (WORD) 
 
TREASURY FOR IA (NEPHEW) 
 
USDA for FAS/ONA/OSTA/OCRA 
 
 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ETRD EIND PREL PGOV CA
 
SUBJECT:  Canada adopts a wait-and-see position on U.S. COOL 
voluntary guidelines 
 
¶1. (SBU) Summary: Canada does not intend - for now - to launch a WTO 
trade challenge against the United States over the voluntary 
guidelines that complement the U.S. Country of Origin Labeling 
(COOL) final rule, Canadian Agriculture Minister Gerry Ritz stated 
on February 25.  Ritz said the voluntary guidelines "are causing 
uncertainty and concern for livestock industries on both sides of 
the border," and indicated that he would monitor whether the 
guidelines' implementation violates international trade commitments. 
 Actions over the next few weeks could change Canada's WTO plans. 
The extent of United States-Canada integration in meat production 
and sales suggests that any additional costs arising from COOL 
compliance might be passed on to U.S. consumers - although 
establishing any direct link would likely be difficult. 
 
Issue Overview 
-------------- 
 
¶2. (U) The COOL final rule, scheduled to go into effect on March 16 
requires country of origin labeling in the United States for beef, 
pork, lamb, goat, and chicken; wild and farm-raised fish and 
shellfish; fresh and frozen fruits and vegetables; peanuts, pecans, 
macadamia nuts, and ginseng.  The final rule prescribes specific 
criteria that must be met for a commodity to bear a "United States 
Country of Origin" declaration.  The final rule also contains 
provisions for labeling covered commodities of foreign or mixed 
origin. 
 
 
¶3. (SBU) The Canadian government and producer groups have followed 
COOL developments closely, particularly regarding regulations for 
beef and pork, given the high degree of integration of the U.S. and 
Canada meat industries.  A central concern is the requirement to 
provide disaggregated information about an animal's place of birth, 
feeding and slaughter.  On January 19, Canada's International Trade 
Minister, Stockwell Day, announced that Canada would not yet pursue 
a WTO challenge against the United States since the existing COOL 
final rule provides flexibility in the labeling of animal products 
that have a Canadian component in the production cycle.  The COOL 
final rule also provides exceptions for processed meat products and 
meat destined for food service establishments. 
 
¶4. (SBU) The new voluntary guidelines announced by U.S. Agriculture 
Secretary Vilsack on February 20 re-ignited Canada's earlier 
concerns about the possible trade-disrupting effects of stricter 
labeling requirements, even those undertaken on a voluntary basis. 
However, the February 23 announcement by Minister Ritz showed that 
Canada will reserve judgment on the new labeling regime until after 
the implementation of the final rule and the voluntary measures. 
 
¶5. (U) The Canadians believe that the main trade regulatory issues 
in contention with COOL are NAFTA and WTO rules of origin provisions 
that state that the last country where a commodity's "substantial 
transformation" occurred (slaughter, curing, etc.) should be 
considered the country of origin.  Canadian officials also state 
that NAFTA and WTO commitments on technical barriers to trade 
require that measures taken to protect consumers (such as labeling) 
should be the least restrictive measures necessary to achieve a 
national purpose. 
 
Possible Trade Disruptive Effects from COOL 
QPossible Trade Disruptive Effects from COOL 
------------------------------------------- 
 
¶6. (U) In 2008, two-way trade in beef and pork (including live 
cattle and hogs) totaled US$4.8 billion.  Canada exported $3.6 
billion to the United States, while importing $1.2 billion.  Canada 
has a trade surplus in both beef and pork, but the share of U.S. 
beef production being exported is growing -- nearly 12 percent in 
¶2008. After Mexico, Canada is the second largest beef export 
destination for the United States. 
 
OTTAWA 00000160  002 OF 002 
 
 
 
¶7. (SBU) Bilateral meat trade is highly complementary.  For example, 
hogs thrive on corn but corn-based feed is cheaper in the United 
States so Canadian farmers supply millions of feeder pigs to U.S. 
hog finishing operations. In beef trade, the integration of the 
markets means Canadian exports augment U.S. supply for fresh and 
chilled carcass and half-carcasses and primal cuts.  U.S. exports to 
Canada are dominated by high-end cuts for the hotel and 
restaurant/food service trade in the population centers of Ontario 
and Quebec.  The Canadian Cattlemen's Association (CCA) warns that 
tighter controls on Canadian ground beef imports could hit 
low-income Americans particularly hard. 
 
¶8. (SBU) The practical effect of the voluntary guidelines is that 
U.S. ranchers and meat-packing companies using the guidelines would 
likely have to handle Canadian animals separately from U.S. ones. 
Canadian government and industry representatives have expressed 
concern that some U.S. packers are already refusing to accept 
Canadian cattle, while others are only processing Canadian cattle on 
certain days and at discount prices.  Responding to the announcement 
of the voluntary guidelines, a spokesman for the Canadian Pork 
Council stated, "Since American farmers depend on Canadian feeder 
pigs and cattle, we're really hoping that the U.S. administration 
will give the rules as finalized a chance to work." 
 
¶9. (SBU) Comment: 
The probability of a WTO challenge from Canada (and potentially 
other trading partners) increases if the voluntary guidelines are 
made mandatory.  Since a WTO or NAFTA challenge to COOL could take 
years to complete, a more immediate concern for the United States 
might be reduced ability to effectively argue against other 
non-scientifically based labeling requirements such as those in the 
European Union pertaining to genetically modified organisms.  A 
tit-for-tat reaction from Canada is possible but not probable.  That 
said, the strength of the U.S.-Canada agricultural trading 
relationship suggests that Canada will look to accommodate new U.S. 
regulations as far as possible and pursue trade retaliation as a 
last resort. End comment