Will Republican control of the House of Representatives get U.S. trade policy back on track?
Rep. Adrian Smith (R-Neb.), a member of the House Ways and Means Committee, says it could. In particular, he’s optimistic that the 118th Congress can deliver on a few bipartisan trade priorities, including the Generalized System of Preferences and the Miscellaneous Tariff Bill.
There’s another trade policy – one also touted as a bipartisan priority – that Smith and his Ways and Means colleagues should be wary of: Mandatory Country of Origin Labeling (MCOOL).
MCOOL requires that the inputs used to make a good be audited for nationality, despite being sourced from a global supply chain. The label is meant to aggregate this information for consumers so that they can make informed choices at the point of sale. Back in the early 2000s, for example, the U.S. labeled cattle and hogs according to where they were “born,” “raised” and “slaughtered.” This saddled American processors of beef and pork with massive record-keeping and verification costs. To reduce these costs, American processors started sourcing cows and pigs that were born and raised in the U.S. over those from Canada and Mexico, since domestic inputs are easy to audit.
Canada and Mexico challenged this label at the World Trade Organization (WTO). In 2012, the Appellate Body ruled against the U.S. scheme, largely because the amount of information that processors had to audit was excessive in relation to what consumers saw. The exceptions, notably for restaurants, didn’t help either.
The reaction in Washington was easy to predict. Proponents insisted that the answer was to convey even more information, the logic being that this would justify the record-keeping and verification costs. Plan B was to make the scheme voluntary (VCOOL), the hope being that this might put the scheme out of the WTO’s reach. This is wishful thinking. VCOOL would certainly be a more elusive target than MCOOL, but it would still be vulnerable.
The 117th Congress put forward several MCOOL bills. HR 7291 and S 2716, titled the American Beef Labeling Act, call on the United States trade representative to “determine a means of reinstating mandatory country of origin labeling for beef … in compliance with all applicable rules of the World Trade Organization.” Easier said than done.
There are several obstacles. First, it’s not clear how more information would be conveyed to consumers in an easy-to-understand way. There are lots of ways to scan for more information, but for this to be proportional to the record-keeping and verification requirements, it would overwhelm consumers, rather than clarify things. No matter how creative the label, there’s only one thing MCOOL is good at, and that’s distinguishing domestic from foreign. As the European Union’s advocate general, Gerard Hogan, put it, MCOOL schemes “pave the way to purely nationalistic – even chauvinistic – instincts.”
Second, Americans typically consume beef in restaurants, and these establishments have neither the ability, nor willingness, to explain MCOOL to patrons. That’s why they got a carve-out from version 1.0, and why they’ll expect one in version 2.0. This exception put the lie to the public policy rationale that proponents of MCOOL advanced last time around. Look for Canada and Mexico to pounce on a repeat.
Third, while the Consumer Federation of America finds that the majority of Americans like the idea of MCOOL, they’re not willing to pay for this information. The U.S. conceded this point to the WTO, explaining that there was no market for a voluntary label. That’s why VCOOL was a no-go in the early 2000s, and why it’s a non-starter today. The proof is that protectionists in Congress keep trying to reinvent MCOOL.
Finally, the only thing that tinkering with MCOOL will achieve is to encourage foreign governments to do the same. Back in 2012, the WTO noted that 67 countries had their own MCOOLs. Many countries are in on this action now, European milk and Italian pasta being among the most prominent examples. These efforts are a threat to U.S. exports and the supply chains they depend on.
MCOOL is one of the most creative protectionist measures of all time. It can doom a global supply chain with nothing more than a label. The good news is that there’s congressional interest in coming up an MCOOL that’s WTO legal. The bad news is that this effort won’t succeed, because a WTO-legal version of MCOOL will only baffle consumers, few (if any) of whom are willing to pay for this information.
By design, MCOOL is about domestic versus foreign. This is hard to square with the WTO.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.