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Will Everyone Please Cool it on the Protectionism?!

Summary:
As negotiations on the North American Free Trade Agreement (NAFTA) continue, many proposals seem to run counter to the goal of modernizing the deal, and some industry groups are taking the opportunity to advance their protectionist agenda. A recent op-ed by Mike Schultz, Vice President of R-CALF USA and COOL Chairman, and Martin Rosas, President of United and Food and Commercial Workers (UFCW) Local 2 in Kansas City, argued for the reinstatement of U.S. legislation that required meat products to bear a label that identifies the country of origin of the product, so-called COOL (country of origin labeling) rules. Supporters of this type of labeling scheme argue that it helps inform consumers of the products they are buying, and that consumers are willing to pay more for this

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As negotiations on the North American Free Trade Agreement (NAFTA) continue, many proposals seem to run counter to the goal of modernizing the deal, and some industry groups are taking the opportunity to advance their protectionist agenda. A recent op-ed by Mike Schultz, Vice President of R-CALF USA and COOL Chairman, and Martin Rosas, President of United and Food and Commercial Workers (UFCW) Local 2 in Kansas City, argued for the reinstatement of U.S. legislation that required meat products to bear a label that identifies the country of origin of the product, so-called COOL (country of origin labeling) rules. Supporters of this type of labeling scheme argue that it helps inform consumers of the products they are buying, and that consumers are willing to pay more for this information. In addition, supporters tend to claim that NAFTA hurt the U.S. beef industry.  All of these arguments are incorrect.

First, the COOL scheme that was established by the United States in 2008 was a complex set of requirements that set out when particular muscle-cuts of meat would require a label that identifies where the product was “born, raised, and slaughtered.” On its face, this may seem benign, but the way the legislation was crafted discourages U.S. meat producers from sourcing foreign meat because of the costs of tracing every step of the production process, including segregating herds by nationality.

Tracing of a piece of meat’s “nationality” is complicated by the fact that there is a lot of back and forth trade in the beef industry between Canada, Mexico and the United States. And there are additional barriers to tracing, like the fact that Alaska and Hawaii transship their cattle through Canada to get to the U.S. market to avoid the high costs of shipping imposed by the Jones Act.

Furthermore, the claim that consumers are willing to pay more for a country of origin label is not supported by the evidence. A 2013 study in the Journal of Agriculture and Resource Economics found an “absence of an increase in demand by U.S. consumers” for products covered by the COOL scheme, which “suggests that any attempt to maintain [COOL] would result in aggregate welfare loss not only within the United States but also with key trading partners.” Furthermore, a 2004 report by the U.S. Department of Agriculture found that “[t]he infrequency of “Made in USA” labels on food suggests suppliers do not believe domestic origin is an attribute that can attract much consumer interest.”

Finally, supporters of this protectionist measure sometimes claim (as the op-ed mentioned above does) that NAFTA hurt the U.S. beef industry. This is false. First off, barriers to the beef and cattle trade have been very low for a long time and this predates NAFTA. Second, while Canada is a top supplier of imported beef to the United States, it makes up 18.6% of the total share of imports, and just 2.5% of U.S. beef and veal consumption. Third, the U.S. beef industry is actually doing quite well, and expected to grow in 2018. In 2016, the U.S. was the top producer of beef and veal (by thousands of metric tons), totaling 11,507 metric tons, with Brazil coming in second with 9,284 metric tons. It is important to note that the U.S. is also the top importer of beef and veal because it is also the top consumer—Americans like their beef, so we need to purchase foreign beef to meet our domestic demand.

This country of origin labeling issue was brought to the World Trade Organization (WTO) by both Canada and Mexico in 2008. In November 2011, a WTO panel concluded that the COOL measure violated the United States’ obligations because it discriminated against imported livestock. This finding was upheld on appeal. Congress eventually repealed the legislation in December 2015 through H.R. 2029. Asking for this legislation would guarantee another dispute, and also disrupt the cattle and beef market again. Using the NAFTA negotiations to ramp up support for this legislation also runs counter to the reality of the beef and cattle trade in North America. Congress should not allow itself to fall prey to this form of regulatory protectionism yet again. 

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