InternationalCh 2017 Chapter13CaseStudyACo BusinessGuideToTradeA

CHAPTER 13 | CASE STUDY A
Chapter 13
Case Study A:
Cooling Off Regulatory Protectionism:
How WTO Litigation Opened the
US Market for Beef and Pork
Simon Lester and Inu Manak1*
under U.S. or applicable copyright law.
1.0 Introduction
Through its dispute settlement process, the World Trade Organization (WTO) provides
a mechanism to address violations of market access commitments. However, the process
can take several years or more, and often requires that the complaining Member go
through a number of stages. It is not always enough to bring a complaint and obtain a
finding of violation. In some cases, the respondent government may do nothing in
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response to such a finding; in others, the respondent government may change the
measure in such a way that it continues to violate the rules. If that government does
permitted
not come into compliance right away, the complainant may need to threaten, or
actually impose, authorised trade sanctions, in order to induce compliance. While this
uses of
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extra work can be burdensome on a complainant, in most cases, where this kind of
retaliation is carefully targeted, compliance, or at least some sort of compromise, is
All rights reserved. May not be reproduced in any form without permission from the publisher, except fair
usually achieved at the end of the day.
To illustrate these issues, we discuss the case of United States – Certain Country of
Origin Labelling (COOL) Requirements (WT/DS/384, 386), in order to reveal the
process and challenges of ensuring market access through a persistent and firm effort
to push a government to comply with its WTO obligations. Complicating matters, this
case involved a measure that had an ostensibly legitimate public policy purpose –
providing consumers with information on the origin of meat. As a result, there were
certain political sensitivities that had to be taken into account. Looking under the
surface of the measure’s rationale, however, the protectionist motivations became
clear. Canada and Mexico, the complainants, were able to convince the panel and the
Appellate Body of the true nature of the measure, and then to craft their retaliation in a
way that caused the United States to withdraw the objectionable parts of the measure.
2.0 Background on the COOL Legislation and Regulations

Before the idea of mandatory Country-of-Origin Labelling (COOL) legislation
attracted much attention from Congress, industry groups aired frustration over
competition from Canadian and Mexican cattle producers. They framed the problem
as Canadian and Mexican cattle being dumped on the US market.
Copyright 2017. ICC Services.
The first COOL legislation was put forward by Rep. Helen Chenoweth-Hage (R-ID) on
17 April 1997, when she introduced the “Imported Meat Labelling Act of 1997.” This
*Simon Lester is a Trade Policy Analyst at the Cato Institute, Washington, DC. Inu Manak is a PhD Candidate in the Department of
Government at Georgetown University, Washington, DC.
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measure would have amended the Federal Meat Inspection Act to require labelling of
meat products with the country-of-origin, specifically to indicate where an animal was
raised before slaughter.1 A similar bill was introduced by Sen. Tim Johnson (D-SD) on
the same day; he argued that the reason for country-of-origin labelling was the lower
quality meat found in imported products.2 Both bills did not advance beyond the
committee stage. Rep. Chenoweth-Hage and Sen. Johnson reintroduced their bills two
years later, and additional bills were put forward by Sen. Tom Daschle (D-SD) and Sen.
Conrad Burns (R-MT).3 Sen. Burns stated that his “bill will protect the consumer as
well as the agricultural industry, which has had to face severe competition from
foreign countries in recent years,” singling out Canada and Mexico.4
It was around this time that the Ranchers-Cattlemen Action Legal Foundation (R-CALF)
was founded for the purpose of filing anti-dumping and countervailing duty cases on
behalf of the US cattle industry.5 On 1 October 1998, R-CALF initiated two anti-dumping
cases against live cattle from Canada and Mexico, and a subsidies case against live cattle
from Canada.6 In January 1999, the International Trade Commission (ITC) made a
preliminary affirmative injury determination with respect to imports of live cattle from
Canada; however, it reached a negative determination for the anti-dumping investigation
on Mexico, which ended that case.7 The ITC made a negative final injury determination
with respect to Canada, stating that “significantly increasing volume of subject imports
are not imminent, and that material injury will not occur in the absence of an anti-
dumping duty order.”8 This effectively ended R-CALF’s petition. In response, however,
the group did not give up its fight against imports, but instead turned its attention to
Congress, focusing on its push for a mandatory country-of-origin labelling statute.
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Back in Congress, legislators were still expressing their worries about foreign competition.
In a September 2000 hearing, Rep. Chenoweth-Hage stated that, “[o]ne of the concerns
of the northern-tiered States...is that there is a lot of cattle coming in in sealed trucks
across the Canadian border to our border States, Idaho being one, the Dakotas, Montana,
Washington, and then of course, it filters down and distorts the American market.”9
As noted above, several attempts were made prior to the 2008 Farm Bill to institute
mandatory country-of-origin labelling for certain muscle cuts of meat, including beef,
lamb, pork, as well as farm-raised fish.10 COOL was eventually passed as part of the
2002 Farm Bill. However, implementation was delayed, principally because the
proposed implementing regulations were considered too onerous. Those continuing
delays led to the 2008 Farm Bill amendments, which provided, potentially, more
labelling flexibility. The original 2008 Farm Bill did not include country-of-origin
labelling provisions; they were later added by the House Committee on Agriculture,
and the Senate Agriculture Committee.
With the legislation in place, on 1 August 2008 the Agricultural Marketing Service
(AMS) of the US Department of Agriculture announced that an interim rule on
mandatory COOL would take effect on 30 September 2008; a final rule was published
on 15 January 2009, which would take effect on 16 March 2009.11
The 2009 Final Rule established origin labelling rules for meat based on the following
five categories: (1) Category A muscle cuts (US country-of-origin); (2) Category B
muscle cuts (multiple countries-of-origin); (3) Category C muscle cuts (imported for
immediate slaughter); Category D muscle cuts (foreign country-of-origin); and (5)
Category E (ground meat). To qualify for category A, the animal must have been born,
raised, and slaughtered in the United States; in contrast, category D is for products
where no part of the production process has occurred in the United States, and it is
therefore wholly of foreign origin. The other categories require labelling to specify that
the meat is a product of the United States and Country X (and Country Y, if applicable).
Through these requirements, the measure required tracking every point in the production
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process. In this regard, the amended 2013 Final Rule required categories B and C to
specifically identify the production steps that occurred in each country, namely, where
the product was born, raised, and slaughtered.
The trade problem with the measure was not the labelling requirement per se. Rather,
it was that the structure of the measure gives certain meat processors an incentive to
use only a single national source of products, so as to avoid the cost of segregating
products by nationality. Canada and Mexico were therefore worried that the measure
would lead to decisions by meat processors to stop using meat and cattle of Canadian
or Mexican origin.
3.0 The WTO Litigation

Based on concerns about this trade impact, Canada and Mexico initially requested
consultations, the first step in a WTO dispute, in December of 2008.12 They moved
forward with the disputes in October 2009, when each requested a panel. A single
panel was established in November to hear both cases. Composition of the panel took
a few months. In May of 2010, the panel was composed, with long-time WTO expert
Christian Häberli as the chair. Dr Häberli served on all of the Bananas panels13 and thus
had experience with contentious WTO litigation involving agricultural products.
The panel issued its ruling in November of 2011, dealing with a wide range of procedural
and systemic issues. On the key legal issue, it concluded that the COOL measure, in
particular in regard to muscle-cuts of meat, violated the national treatment obligation
of TBT Agreement Article 2.1.14 An important aspect of its reasoning was that, in the
context of the muscle-cut labels, the COOL measure “creates an incentive in favour of
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processing exclusively domestic livestock and a disincentive against handling imported

livestock.” Accordingly, the measure “de facto discriminates against imported livestock
by according less favourable treatment to Canadian cattle and hogs, and to Mexican
cattle, especially Mexican feeder cattle, than to like domestic livestock.” 15
On appeal, the Appellate Body modified the panel’s reasoning in important ways, but
reached the same result. Ultimately, the Appellate Body upheld, albeit for different
reasons, the panel’s finding that the COOL measure, particularly in regard to muscle-
cut meat labels, is inconsistent with TBT Agreement Article 2.1 because it accords less
favourable treatment to imported livestock than to like domestic livestock.16
The Appellate Body report was circulated in June of 2012. The reports were adopted
by the DSB in July of 2012. Through an Article 21.3(c) arbitration, the United States
was given 10 months to comply.17
In the face of these adverse findings, the United States amended the COOL requirements,
in a new regulation issued in May of 2013. However, in the view of Canada and Mexico,
the US efforts to comply with the WTO DSB rulings were insufficient. In August of
2013, both complainants brought complaints under Article 21.5 of the Dispute
Settlement Understanding, alleging that the new measures were not in compliance
with WTO obligations. The original panel was called upon to examine these claims.
In a report issued in October of 2014,18 the Panel once again found the United States
to be in violation. This time, it found that the amended COOL measure had increased
the original COOL measure’s detrimental impact on the competitive opportunities of
imported livestock, and this impact did not stem exclusively from legitimate regulatory
distinctions. As a result, the measure accorded less favourable treatment to imported
livestock than to like products of US origin, in violation of TBT Agreement Article 2.1. It
also found that, on the basis of its finding of detrimental impact, along with
consideration of other relevant factors, the amended COOL measure violated the
national treatment obligation of GATT Article III:4.
On appeal, the Appellate Body upheld these findings in a report issued in May of
2015.19 The DSB adopted these reports on 29 May 2015.
With the United States having been found in violation again, in June of 2015 Canada
and Mexico filed a request for authorisation from the WTO to suspend tariff
concessions with respect to the United States, based on the level of nullification or
impairment of the benefits they claimed to have suffered as a result of the COOL
measure. Canada requested an annual amount of just over C$3 billion;20 Mexico asked
for an annual amount of more than US$700 million.21
In response, as is always the case in these matters, the United States objected to the
level of suspension proposed, and requested that this matter be referred to
arbitration. The arbitration panel – made up of the same panellists who served on the
original dispute – was constituted several weeks later. After a meeting with the parties
in mid-September,22 the panel released its decision on 7 December 2015. It found that
the COOL measure resulted in an annual nullification and impairment of benefits to
Canada amounting to a little more than C$1 billion annually, and US$227 million
annually to Mexico.23
With respect to the products to be targeted, in June 2013 (while litigation was
ongoing) the Canadian government released a list of US commodities for possible
retaliation.24 The official list, which specified products by state targets, would not be
released until two years later. The idea was to provide ample time for industry groups
and interested stakeholders to provide input in what would become the final list. In a
statement by Ed Fast, Minister of International Trade and Minister for the Asia-Pacific
Gateway, and Gerry Ritz, Minister of Agriculture and Agri-Food and Minister for the
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Canadian Wheat Board Trade, the Canadian government explained why it was
releasing a list of products for retaliation at this time. They stated:
When the United States failed to comply by the May 23 deadline, we said we would pursue
all options available. Today, we are also releasing a list of U.S. commodities for possible
retaliation, to be published as soon as possible in the Canada Gazette, as a way to formally
launch the consultation process…. To respect Canada’s WTO obligations, our government
will not act on these retaliatory measures until the WTO authorises us to do so.25
Ritz made clear that the list of 38 products was preliminary, and meant to serve as a
living document that could be adjusted in the future.26 Mexico’s Ministry of Economy
followed suit in a press release the same day,27 though the government did not
provide a list of targeted commodities until 2015.28
The act of publishing the list of commodities that could be targeted by retaliation, if
authorised, was done to apply pressure, with the hope of resolving the dispute as
soon as possible.
In April 2015, prior to the request for an authorization for a suspension of concessions,
Canada and Mexico made known the specific targets for potential retaliation. Mexico
said that it would draw from the same list it used for the NAFTA Trucking Services
dispute,29 which included a variety of items, such as meat products, juices, fruits and
vegetables, as well as a number of consumer products.30 Canada was even more
specific in its list of targets, posting on its Embassy of Washington, DC, website in
April 2015 a list of products for retaliation, broken down by US state.31 This became
part of the broader “#FIXCOOL” campaign, which highlighted the benefits of trade
with Canada, state-by-state, and the negative impact of the COOL legislation. For
instance, noting that Canada is California’s number one export market for agriculture
and agri-food, the state was singled out for the largest amount of retaliatory tariffs,
totalling US$835 million on wine, bread, pastry, cakes and biscuits, jewellery, semi-
milled or wholly milled rice, and pasta and couscous.32 This strategy was repeated
with each state, spelling out specific HS tariff lines selected for future retaliation.
The threat of retaliation proved successful. On 18 December 2015, Congress repealed

the measure, as it relates to beef and pork products.33 President Obama signed the
repeal into law the same day.34 With respect to the regulations, Secretary of Agriculture
Tom Vilsack released a statement, also on 18 December 2015, that COOL repeal was
effective immediately.35 The final rule for the removal of mandatory COOL was
published on 2 March 2016 in the Federal Register and became effective the same day.36
Back at the WTO, the DSB authorised the retaliation set out in the arbitrator’s decision
on 21 December 2015.37 Authorisation after compliance may seem unnecessary, but
the complainants indicated that in the absence of a formal rule change, which had not
yet occurred, US livestock importers might be hesitant to purchase the imported
products at issue. More generally, they may have feared the reinstatement of the
measure at some later time, and wished to formalise their right to retaliate, to be used
if needed in the future.38
4.0 Lessons Learned

The COOL dispute illustrates how complainants can achieve market access through
WTO dispute settlement. However, it also makes clear how slow that process can
be. In this case, Canada and Mexico requested consultations in December 2008.
The measure was modified to their satisfaction seven years later, in December
2015. That is a long time, and suggests that improvements to the efficiency of the
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process would be desirable. Until that happens, though, a strategy of persistence is

the complainants’ only option.
In this case, the threatened retaliation was effective in achieving a repeal of the
COOL measure, in part because Canada and Mexico strategically laid out plans to
target key US industries exporting to their respective countries.
As a final point, this WTO dispute is one of a number of recent cases where civil
society groups have raised questions about whether WTO obligations intrude too
much into domestic policy-making, in ways that interfere with legitimate regulation.
These cases are particularly difficult, because there is likely to be opposition
from civil society, which must be taken into account. Here, the concern was that
measures to provide consumers with information on the origin of products may
violate WTO rules. However, when the facts of this case are examined carefully, it
becomes clear that mandatory country-of-origin labelling measures are permitted.
In fact, the original panel in this case found that the labelling requirements for
ground beef do not violate these rules. Rather, it was only the requirements for
muscle-cuts of beef and pork that were a problem. With regard to the muscle-
cuts, there were options that would have provided consumers with a great deal
of information, without requiring the costly segregation of products of different
national origin that led to the finding of violation. For example, the law could have
required that only products that had been certified as exclusively US origin could
be labelled as such. If a meat processor used products from both Canada and the
United States, on the other hand, it could use a label such as “Product of North
America” or “Product of Canada and/or the United States.” But the legislative
history of the provision indicates that those who promoted this provision were
not looking for ways to provide consumer information, but rather were seeking a
disguised means of protecting domestic producers from foreign competition.
1 HR 1371 – Imported Meat Labelling Act of 1997. This bill would later be accepted as an amendment to the Agricultural Appro-
priations Bill of 1998 on 16 July 1998 and was openly supported by the National Farmers Union, the American Farm Bureau
Federation, the National Cattlemen's Beef Association, and the American Sheep Industry.
2 Senator Johnson, speaking on S. 617, 105th Cong., 1st sess., Congressional Record 143 (17 April 1997): S 3364.
3 See H.R. 222 - Imported Meat Labelling Act of 1999; S.242 – Meat Labelling Act of 1999; S.19 – Agricultural Safety Net and
Market Competitiveness Act of 1999; and also S.251 – A bill to amend the Federal Meat Inspection Act to require that imported
beef or lamb bear a label identifying the country of origin.
4 Country of Origin Labelling Bill, S. 251, 106th Cong., Congressional Record 145, pt. 1.
5 R-CALF USA, “Why was R-CALF USA founded,” (26 April 2013), http://www.r-calfusa.com/tb_faq/why-was-r-calf-usa-foun-
ded/.
6 “U.S. Cattle Ranchers Launch Trade Cases Against Canada, Mexico,” Inside U.S. Trade (2 October 1998).
7 “ITC Votes on Canada/Mexico Cattle Cases,” Inside U.S. Trade (19 January 1999), http://insidetrade.com/content/itc-votes-ca-
nadamexico-cattle-cases.
8 US International Trade Commission, “Live Cattle from Canada: Investigation No. 731-TA-812 (Final),” Publication 3255 (Novem-
ber 1999), p.24.
9 House Committee on Agriculture Democrats, “Country of Origin Meat Labelling Act – Hearing Before the Subcommittee on
Livestock and Horticulture,” (26 September 2000), http://commdocs.house.gov/committees/ag/hag10664.000/hag10664_0f.
htm.
10 See H.R. 1371 – Imported Meat Labelling Act of 1997; H.R. 222 - Imported Meat Labelling Act of 1999; S.280 – Consumer
Right-to-Know Act of 2001; H.R. 2646 – Farm Security and Rural Investment Act of 2002 (Thune-Ross Amendment); H.R.
4576 – Food Promotion Act of 2004; H.R. 2744 - Agriculture, Rural Development, Food and Drug Administration, and Related
Agencies Appropriations Act (2006).
11 Agricultural Marketing Service, Interim Final Rule, “Mandatory Country of Origin Labelling of Beef, Pork, Lamb, Chicken, Goat
Meat, Perishable Agricultural Commodities, Peanuts, Pecans, Ginseng, and Macadamia Nuts,” Federal Register 73, no. 149 (1
August 2008): 45106, https://federalregister.gov/a/E8-17562; Agricultural Marketing Service, Final Rule, “Mandatory Country
of Origin Labelling of Beef, Pork, Lamb, Chicken, Goat Meat, Wild and Farm-Raised Fish and Shellfish, Perishable Agricultural
Commodities, Peanuts, Pecans, Ginseng, and Macadamia Nuts,” Federal Register 74, no. 10 (15 January 2009): 2658, https://
federalregister.gov/a/E9-600.
12 Request for Consultations by Canada, United States – Certain Country of Origin Labelling (COOL) Requirements WT/DS384/1;
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Request for Consultations by Mexico, United States – Certain Country of Origin Labelling (COOL) Requirements WT/DS386/1.
13 See EC – Regime for the Importation, Sale and Distribution of Bananas, WT/DS/27.
14 The Panel also found that the COOL measure did not fulfil its identified objective "because it fails to convey meaningful origin
information to consumers," and thus violates TBT Agreement Article 2.2. However, on appeal, the Appellate Body reversed
this finding and thus overturned the finding of violation. It was unable to complete the analysis, leaving this issue unresolved.
In addition, the panel concluded that Mexico did not establish that the COOL measure violates TBT Agreement Article 2.4
(requirement to use international standards unless ineffective or inappropriate), and concluded that United States acted
inconsistently with GATT Article X:3(a) by failing to administer the COOL measure in a "reasonable" manner. These findings
were not appealed.
15 United States – Certain Country of Origin Labelling (COOL) Requirements, WT/DS384/R; WT/DS386/R (2012), as modified by
Appellate Body Reports WT/DS384/AB/R and WT/DS386/AB/R (para. 7.420).
16 United States – Certain Country of Origin Labelling (COOL) Requirements, WT/DS384/AB/R; WT/DS386/AB/R, (2012), (para.
350).
17 United States – Certain Country of Origin Labelling (COOL) Requirements – Arbitration under Article 21.3(c) of the DSU, WT/
DS384/24; WT/DS386/23, para. 123 (2012).
18 United States – Certain Country of Origin Labelling (COOL) Requirements – Recourse to Article 21.5 of the DSU by Canada
and Mexico, WT/DS384/RW and Add.1 / and WT/DS386/RW and Add.1, (2015), as modified by Appellate Body Reports WT/
DS384/AB/RW / WT/DS386/AB/RW.
19 United States – Certain Country of Origin Labelling (COOL) Requirements – Recourse to Article 21.5 of the DSU by Canada
and Mexico, WT/DS384/AB/RW / WT/DS386/AB/RW (2015).
20 Recourse by Canada to Article 22.2 of the DSU, United States – Certain Country of Origin Labelling (COOL) Requirements,
WT/DS384/35 (5 June 2015).
21 Recourse by Mexico to Article 22.2 of the DSU, United States – Certain Country of Origin Labelling (COOL) Requirements,
WT/DS386/35 (19 June 2015).
22 United States – Certain Country of Origin Labelling (COOL) Requirements – Recourse to Article 22.6 of the DSU the United
States, WT/DS384/ARB and Add.1 / WT/DS386/ARB and Add.1, circulated to WTO Members, 7 December 2015 (para. 1.14).
23 United States – Certain Country of Origin Labelling (COOL) Requirements – Recourse to Article 22.6 of the DSU the United
States, WT/DS384/ARB and Add.1 / WT/DS386/ARB and Add.1, para. 7.1 (2015).
24 Global Affairs Canada, “Statement by Ministers Fast and Ritz on U.S. Country of Origin Labelling,” (7 June 2013), http://www.
international.gc.ca/media_commerce/comm/news-communiques/2013/06/07a.aspx?lang=eng.
25 “Statement by Ministers Fast and Ritz on U.S. Country of Origin Labelling” (7 June 2013), http://www.international.gc.ca/
media_commerce/comm/news-communiques/2013/06/07a.aspx?lang=eng.
26 Daniel Enoch, “US could be hit with about $3 billion in retaliation in COOL dispute,” Agri-Pulse (4 June 2015), http://www.agri-
pulse.com/Canada-seeking-3-billion-in-retaliatory-measures-in-COOL-dispute-06042015.asp.
27 Ministry of Economy, Mexico, “Mexico will continue challenging the Country of Origin Labelling (COOL) requirements before
the WTO and, if necessary, will adopt retaliatory measures against the United States,” (7 June 2013). http://www.ottawa.eco-
nomia.gob.mx/swb/work/models/Ottawa/Resource/1/1/pdfs/Comunicado_prensa_COOL_07062013_final_ing.pdf.
28 The Embassy of Mexico in Washington, DC, did, however, indicate during a briefing on 30 March 2015, that products targeted
during the United States-Mexico dispute on trucks during 2009 to 2011 were general examples of products it would target.
See Joel L. Greene, “Country of origin Labelling for Foods and the WTO Trade Dispute on Meat Labelling,” Congressional
Research Service (8 December 2015), https://www.fas.org/sgp/crs/misc/RS22955.pdf.
29 See USA-MEX-1998-2008-01; for the list of items selected for retaliation, see U.S. International Trade Administration, “Mexico
Retaliation: NAFTA Trucking Dispute,” (21 October 2011), http://www.trade.gov/mas/ian/build/groups/public/@tg_ian/docu-
ments/webcontent/tg_ian_002692.pdf.
30 Greene, note 28, p.55.
31 Embassy of Canada in Washington, DC, Country of Origin Labelling, List of Reports (April 2015), http://www.can-am.gc.ca/
washington/events-evenements/2015/COOL-Labeling.aspx?lang=eng.
32 Embassy of Canada in Washington, DC, Country of Origin Labelling, List of Reports, California (April 2015), https://www.
dropbox.com/s/uee38f3a0k1ru5e/cool-ca.pdf?dl=0%E2%80%9D.
33 “Congress clears US$1.8 trillion tax and spending bills,” Politico (18 December 2015), http://www.politico.com/story/2015/12/
democratic-support-for-omnibus-growing-216931#ixzz45eEApDt1; “Canada, Mexico Get Green Light To Retaliate Over COOL,
Despite Repeal,” Inside U.S. Trade (25 December 2015), http://insidetrade.com/inside-us-trade/canada-mexico-get-green-
light-retaliate-over-cool-despite-repeal.
34 H.R.2029, 114th Congress; “Cool Repealed, Crude Export Ban Lifted as Obama Signs Omnibus,” Inside U.S. Trade (25 Decem-
ber 2015).
35 “Statement from Agriculture Secretary Tom Vilsack on the Country of Origin Labelling Requirements for Beef and Pork,”
USDA (18 December 2015), http://www.usda.gov/wps/portal/usda/usdahome?contentid=2015/12/0345.xml. (“The omnibus
bill repealed the country of origin labelling (COOL) requirements for muscle cuts of beef and pork, and ground beef and pork.
Effective immediately, USDA is not enforcing the COOL requirements for muscle cut and ground beef and pork outlined in
the January 2009 and May 2013 final rules.”)
36 Department of Agriculture, "Removal of Mandatory Country of Origin Labelling Requirements for Beef and Pork Muscle Cuts,
Ground Beef, and Ground Pork," Federal Register 81, no. 41 (2 March 2016), https://www.govinfo.gov/content/pkg/FR-2016-
03-02/pdf/2016-04609.pdf.
37 DSB grants authorization to Canada and Mexico for retaliation against the US in the “COOL dispute” (21 December 2015),
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https://www.wto.org/english/news_e/news15_e/dsb_18dec15_e.htm; see also DSB, Minutes of Meeting, 21 December 2015,

WT/DSB/M/372.
38 “Canada, Mexico Get Green Light To Retaliate Over COOL, Despite Repeal,” Inside U.S. Trade (23 December 2015).
CHAPTER 13 | CASE STUDY B
Case Study B:
Litigating Conceptual Disputes
in the WTO: The Case of Zeroing
Neil R. Ellis1*
1.0 Introduction
One of the most significant developments in trade regulation over the past 20 years
has been the establishment and global acceptance of the World Trade Organization’s
dispute settlement system. Since the WTO was founded in 1995, its Dispute Settlement
Body has become the preeminent forum for disputes involving international trade
issues, evidenced by the fact that it has been presented with over 500 disputes (of
which more than 200 have resulted in panel and Appellate Body decisions)
addressing a range of controversies, large and small, among a host of Members.
(See Chapter Twelve.) Decisions of panels and the Appellate Body have, in most
cases, been settled and ultimately implemented by the Members, although
admittedly not always with enthusiasm. A few disputes, however, have proven more
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difficult to resolve. Examples include situations involving non-trade policy

objectives, such as: (i) health concerns, as in the protracted dispute regarding the
ban by the European Union on imports of hormone-treated beef from Canada and
the United States;1 (ii) environmental concerns, as in the disputes dating back to the
GATT-days involving actions taken against fishing practices considered to endanger
dolphins, United States – Tuna I and II;2 and (iii) major commercial disputes
involving issues of Member prestige, such as the ongoing disputes between the
United States and the European Union concerning large commercial aircraft.3
Another type of dispute that is difficult to resolve involves concepts that underlie
WTO Agreements that are subject to conflicting understandings. One example is
provided by anti-dumping cases involving the so-called “zeroing” methodology. Disputes
challenging zeroing have flared up for over 15 years, and they continue today. A study
of these disputes – which number nearly 20 – reveals the complexities confronting the
dispute resolution system when parties have conflicting interpretations of basic principles.
2.0 The Zeroing Disputes

The Anti-Dumping Agreement,4 which builds on Article VI of the GATT, provides for
an investigation, whose purpose is: (i) to determine whether dumping is taking place,
and if so (ii) whether it is causing or threatening material injury to a domestic
industry.5 If both determinations are affirmative, an anti-dumping order is issued and
imports are subject to anti-dumping duties. Once in place, anti-dumping orders are
subject to several types of reviews.6 The distinction between investigations and
reviews became important as the zeroing controversy developed.
*Partner, Sidley Austin LLP, Washington, DC. The author gratefully acknowledges the assistance of Jan Yves N. Remy, a foreign
attorney with Sidley Austin LLP, in the preparation of this paper. The views expressed in this chapter represent the personal views
of the authors, and do not represent the views of Sidley Austin LLP or its clients. This chapter has been prepared for informatio-
nal purposes only and does not constitute legal advice. This information is not intended to create, and the receipt of it does not
constitute, a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional
advisers.
Article 2.4.2 of the Anti-Dumping Agreement sets out the guidelines by which “the
existence of margins of dumping” is to be “established during the investigation phase”.
That article comprises two sentences. The first provides that, during the investigation
phase, the existence of margins of dumping “normally” is to be established through
the application of one of two comparison methodologies – either: (i) by comparing a
weighted average normal value with a weighted average of prices of all comparable
export transactions (“W-to-W”); or (ii) by comparing normal value and export prices
on a transaction-to-transaction basis (“T-to-T”).7 However, the second sentence of
Article 2.4.2 provides for an exception whereby a weighted average normal value may
be compared to prices of individual export transactions (“W-to-T”), provided that
certain conditions are met (see Section 2.3 below).
The “zeroing” disputes arise from the fact that as a procedural matter, when
calculating a dumping margin for an exporter, the investigating authority must
frequently undertake multiple comparisons, either because many individual
transactions are involved, or because the “product” that is the subject of the
investigation is divided into multiple “sub-products” (or “models”). In such situations,
the authorities generally determine the mathematical results of the comparisons for
individual models or transactions, and then combine those results into a single
dumping margin for the exporter and product.8 Some of the individual comparisons
may generate positive mathematical outcomes (because the normal value is higher
than the export price, i.e., there is dumping), and conversely, some may generate
negative mathematical outcomes (because the normal value is lower than the export
price, i.e., there is no dumping).
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The question at issue in the zeroing disputes is whether it is permissible for

investigating authorities, when combining the mathematical results of individual
comparisons, to disregard the negative results or treat them as if they were zero
(hence, the term “zeroing”). Although this sounds arcane, it has been the focus of
significant controversy because zeroing inflates dumping margins, as it fails to give full
effect to the negative results, which would reduce the margins.
As will be seen below, whether or not zeroing is permissible under the WTO Agreements
requires consideration of the meaning of the terms “dumping” and “margins of
dumping” in the Anti-Dumping Agreement, and Articles VI:1 and VI:2 of the GATT.
2.1 The Bed Linen Case

The “zeroing” issue first arose in WTO dispute settlement in 1998. In EC – Bed Linen,
India claimed that the EC had violated Article 2.4.2 of the Anti-Dumping Agreement
by engaging in “zeroing” when it calculated the margins of dumping in an
investigation. The Appellate Body agreed with India. It explained, in what would come
to serve as the bedrock principle for future analyses, that Article 2.1 of the Anti-
Dumping Agreement defines the appropriate focus for the dumping calculation as “a
product”, so that the margins of dumping are determined for a “product”, and not
multiple types or models of a product.9 Moreover, because Article 2.1 opens with the
clause, “For the purpose of this Agreement,” its principles apply to the “margins of
dumping” under Article 2.4.2.10 Thus, the Appellate Body found, “[w]hatever the
method used to calculate the margins of dumping, in our view, these margins must be,
and can only be, established for the product under investigation as a whole.”11
Further, the first sentence of Article 2.4.2 provides that one methodology by which a
margin of dumping may be calculated is “on the basis of a comparison of a weighted
average normal value with a weighted average of prices of all comparable export
transactions….” The Appellate Body determined that, in disregarding the results of
certain comparisons (those with negative results), the EC did not establish a margin of
dumping on the basis of “all” comparable transactions for the product as a whole.12
Furthermore, the Appellate Body concluded that, by failing to fully take into account
the prices of all the comparable transactions, the EC had failed to engage in a “fair
comparison” as required by Article 2.4 of the Anti-Dumping Agreement.13
This analysis laid down the foundation for zeroing jurisprudence. The ensuing debate
demonstrated that, despite its apparent technicality, this conflict addressed the basic
issue of the meaning of “dumping”. The term dumping had been used by Members,
ambiguously, to mean both: (i) the results of individual comparisons of specific export
sales (or weighted average export sales) and their respective normal values, and (ii)
the aggregation of those individual comparison results to determine the overall
margin for the “product” and the overall outcome for an exporter/product. Indeed, this
ambiguity is reflected in the statutory definitions adopted by the United States in
implementing the Uruguay Round Agreements, inasmuch as one statutory provision
defines a “dumping margin” as “the amount by which the normal value exceeds the
export price or constructed export price of the subject merchandise”14 (which, on its
face, could mean either the result of individual comparisons or the aggregate amount
of such individual results), whereas a second statutory provision defines “weighted
average dumping margin” as “the percentage determined by dividing the aggregate
dumping margins determined for a specific exporter or producer by the aggregate
export prices and constructed export prices of such exporter or producer”15 (thus
clarifying that the initial term, “dumping margin,” means only the former).
2.2 Subsequent Cases

The battle in the WTO over the meaning of “dumping” has continued since EC – Bed
Linen. After India’s successful challenge of EC practice, several Members, including the
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EC, attacked US use of a similar “zeroing” practice. In US – Softwood Lumber V,16 US

– Zeroing (EC),17 and US – Zeroing (Japan),18 the panels distinguished EC – Bed Linen
and concluded that the US practice of zeroing in both investigations and reviews was
consistent with US obligations under the WTO Agreements. In all three cases the
Appellate Body reversed the panels.
In these disputes, the Appellate Body consistently interpreted the treaty terms
according to the vision it first enunciated in EC – Bed Linen and declined to accept
limitations or alternative views developed by the panels. The Appellate Body clarified,
however, that its analysis did not depend on what had appeared to be one of the
underpinnings of the Bed Linen decision – namely, the “all comparable export
transactions” phrase in the first sentence of Article 2.4.2.
In Softwood Lumber V, the US Department of Commerce did something unusual in

attempting to implement the Appellate Body decision – it used the second (“T-to-T”)
comparison option authorised in the first sentence of Article 2.4.2, comparing the
normal value and export price of individual transactions, rather than the W-to-W
method, which was its normal practice. It did so expressly on the ground that it
considered zeroing to be permissible when an investigating authority employed the
T-to-T comparison methodology, unlike the W-W methodology.19 Canada brought
compliance proceedings under Article 21.5 of the Dispute Settlement Understanding,
to challenge what it perceived to be US failure to satisfy its implementation obligations.20
The Appellate Body agreed with Canada. It conceded that the “all comparable sales”
phrase does not modify the T-to-T comparison option under the first sentence of
Article 2.4.2. Nevertheless, the Appellate Body concluded that certain other provisions
in the Agreement require that the calculation of dumping margins include the full
value of all individual comparison results in T-to-T comparisons, as well as W-to-W,
and that this requirement was violated through the use of zeroing. The Appellate
Body rejected the argument, presented by the United States and accepted by the
Panel, that linking the phrase “all comparable transactions” solely with the W-to-W
comparison option in the first sentence of Article 2.4.2 meant that investigating
authorities, when applying the T-to-T comparison methodology, were not governed by
the same obligation to consider the full mathematical value of “all” transactions.21 In
doing so, the Appellate Body identified the same basic principles underlying Article
2.4.2 that had first been noted in Bed Linen, and concluded that the term “margins of
dumping” in the first sentence could not have a different meaning depending on
which of the two “normal” comparison methodologies was employed in individual
cases. Instead, the Appellate Body noted that the proper interpretation of the term
“margins of dumping” required the consideration of all individual comparison results,
whether on a W-to-W or T-to-T basis. It also confirmed its prior reliance on the
context provided by Article 2.1,22 which, as noted above, refers to a “product” –
meaning “product as a whole”. In addition, the Appellate Body found support from
the context provided by various other provisions of the Anti-Dumping Agreement.23
Thus, in the course of adjudicating the zeroing issue, the Appellate Body considered a
broad array of topics governed by the Agreement, and provided a coherent explication
of its various provisions to support its interpretation that zeroing was inconsistent with
the concept of dumping. Moreover, the Appellate Body addressed the application of
the concept of dumping in the full range of proceedings covered by the Agreement
– including “the investigation phase”, the assessment reviews and the five-year reviews.24
The zeroing disputes highlighted two incompatible views of the meaning of the term
“dumping”. At the end of the day, in order to ensure that the Members maintain a
coherent understanding of their obligations as set forth in the WTO Agreements, it was
necessary that a single meaning be adopted; conflict could not continue indefinitely. As
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the concurrence in the Appellate Body’s report in United States – Continued Existence
and Application of Zeroing Methodology (WT/DS350) eloquently explained:
Whatever the difficulty of interpreting the meaning of “dumping”, it cannot bear a
meaning that is both exporter-specific and transaction-specific. . . . The range of
meanings that may constitute a permissible interpretation does not encompass meanings
of such wide variability, and even contradiction, so as to accommodate the two rival
interpretations. One must prevail. The Appellate Body has decided the matter. At a point
in every debate, there comes a time when it is more important for the system of dispute
resolution to have a definitive outcome, than further to pick over the entrails of battles
past. With respect to zeroing, that time has come.25
2.3 Zeroing Revived – Targeted Dumping

And so it appeared that the issue had finally been resolved. In its report circulated in
June 2011, the Panel in US – Orange Juice (Brazil) accepted the Appellate Body’s
position regarding zeroing,26 and in other disputes, the issue was resolved with
minimal challenge by the United States.27 In 2012 the Department of Commerce
announced that it would no longer use zeroing in anti-dumping reviews,28 more than
five years after it had said that it would not use zeroing in investigations.29
But the debate has not ended. As pointed out in Section 2.0 above, Article 2.4.2
contains a second sentence. The authority granted by this sentence to employ the
W-to-T comparison methodology in cases of “targeted” dumping – which occurs
when there is “a pattern of export prices which differ significantly among different
purchasers, regions, or time periods” – had not been used for many years. However, at
the same time as it implemented the adverse WTO decisions on the use of zeroing in
investigations and periodic reviews, the US Department of Commerce resuscitated its
authority to use the W-to-T comparison methodology in investigations by developing
new methodologies to meet the preconditions set forth in the US statutory analogue
of the second sentence of Article 2.4.2. The Department made clear that: (1) when
employing the W-to-T methodology pursuant to the authority granted by the
domestic statutory analogue to the second sentence of Article 2.4.2, it could once
again use the zeroing methodology; and (2) although both the second sentence of
Article 2.4.2 and the domestic statutory analogue are explicitly limited to investigations,
the Department would use that authority to employ W-to-T comparisons, with
zeroing, in periodic reviews as well (if targeted dumping is found to exist).
Unsurprisingly, these developments have generated another spate of WTO disputes,

commenced by Korea in 2013 (US – Washing Machines),30 and by China in the same
year (US – Anti-Dumping Methodologies (China)).31 In the Washing Machines case the
Appellate Body found that a number of aspects of the Department of Commerce’s
targeted dumping methodology were inconsistent with the Agreement, and severely
limited the use of the methodology. In China’s case the Panel also found fault with the
Department’s methodology.
3.0 Conclusion
The existence of difficult cases is not a sign of weakness in the WTO dispute
settlement system. To the contrary, it reflects the fact that the system is sufficiently
robust and well-regarded that Members are willing to bring contentious issues before
it in an attempt to obtain their resolution. To the extent that disputes arise from
ambiguities in the negotiated texts, such lack of precision may be unfortunate, but
may also be necessary in order to reach accord at all. As stated by the concurrence in
United States – Continued Existence and Application of Zeroing Methodology:
… there is an inevitable recognition that a treaty bears the imprint of many hands. And
what is left behind is a text, sometimes negotiated to a point where an agreement to
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regulate a matter could only be reached on the basis of constructive ambiguity, carrying
both the hopes and fears of the parties. Interpretation is an endeavour to discern order,
notwithstanding these infirmities, without adding to or diminishing the rights and
obligations of the parties.32
A robust dispute settlement system can handle ambiguities, provided the parties are
willing to accept and abide by the outcome of such disputes. In the zeroing cases, the
WTO dispute settlement system has slowly been moving toward this goal.
1 EC – Measures Concerning Meat and Meat Products (Hormones), WT/DS26, 48/AB/R (1998); United States – Continued Sus-
pension of Obligations in the EC – Hormones Dispute, WT/DS320/AB/R (2008); Canada – Continued Suspension of Obliga-
tions in the EC – Hormones Dispute, WT/DS321/AB/R (2008).
2 United States – Restrictions on Imports of Tuna, GATT DS21 (1991), BISD 39S/155 (unadopted); and United States – Measures
Concerning the Importation, Marketing and Sale of Tuna and Tuna Products (Mexico), WT/DS381/AB/R (2012).
3 European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft, (WT/DS316); United
States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353.
4 Its full title is “Agreement on the Implementation of Article VI of the General Agreement on Tariffs and Trade 1994”.
5 See Chapter Six.
6 They include assessment reviews (used to determine the amount of anti-dumping duties due), new shipper reviews (of ship-
pers who were not subject to the original investigation), expedited reviews, and sunset reviews (to determine every five years
whether the anti-dumping order should remain in place). See Chapter Six.
7 The purpose of this provision was to end the US practice of comparing individual export prices with an average of home
market (or third country) prices over the entire period of investigation. This can generate dumping margins if prices fluctuate
over that period, even if export prices and home market prices are aligned on any given day.
8 The sum of those results is then divided by the total export sales value during the relevant time period to derive the percen-
tage dumping margin or rate for the exporter.
9 European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/AB/R, DSR 2001:V,
p. 2049 (2001) (“EC – Bed Linen”), paras. 52 and 53.
10 See United States – Final Anti-Dumping Measures on Stainless Steel from Mexico, WT/DS344/AB/R, DSR 2008:II, p. 513
(2008) (“US – Stainless Steel (Mexico)”), para. 84; Appellate Body Report, United States – Measures Relating to Zeroing and
Sunset Reviews, WT/DS322/AB/R, DSR 2007:I, p. 3; (“US-Zeroing (Japan)”) (2007), para. 109.
11 Appellate Body Report, EC – Bed Linen, para. 55.
12 Appellate Body Report, EC – Bed Linen, para. 55.
13 19 U.S.C. § 1677(35)(A).
14 19 U.S.C. § 1677(35)(B).
15 United States – Final Dumping Determination of Softwood Lumber from Canada, WT/DS264 (2004).
16 United States – Laws, Regulations and Methodology for Calculating Dumping Margins (Zeroing) (EC), WT/DS294 (2006).
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17 United States – Measures Relating to Zeroing and Sunset Reviews (Japan), WT/DS322 (2007).
18 US Department of Commerce, Notice of Determination Under Section 129 of the Uruguay Round Agreements Act:
Anti-dumping Measures on Certain Softwood Lumber Products from Canada, 70 Fed. Reg. 22636 (2 May 2005).
19 United States – Final Dumping Determination on Softwood Lumber from Canada – Recourse to Article 21.5 of the DSU by
Canada, WT/DS264/AB/RW (2006), DSR 2006:XII, p. 5147.
20 US – Softwood Lumber V, (Article 21.5) paras. 90-92.
21 US – Softwood Lumber V, (Article 21.5), para. 92 (quoting US – Zeroing (EC), para. 34).
22 Including Articles 5.8 (which provides for termination of an investigation if the dumping margin for an exporter is de minimis),
6.10 (requiring, “as a rule” that an individual margin of dumping be calculated for each known exporter or producer), and 9.3
(providing for assessment or periodic reviews). US – Softwood Lumber V (Article 21.5), paras. 105-109.
23 The “investigation phase” is governed by Article 2.4.2 of the Agreement. The assessment review (also known as a periodic
or administrative review) is governed by Article 9.3, and the five-year (“sunset” or “expiry”) review is governed by Article
11.3. See e.g., United States – Laws, Regulations and Methodology for Calculating Dumping Margins ("Zeroing"), WT/DS294/
AB/R and Corr.1 (2006), DSR 2006:II, p. 417; US – Zeroing (Japan); US – Stainless Steel (Mexico); United States – Continued
Existence and Application of Zeroing Methodology (EC), WT/DS350/AB/R (2009), DSR 2009:III, p. 1291 (“US – Continued
Zeroing”); United States – Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from
Japan, WT/DS244/AB/R (2004), DSR 2004:I, p. 3 (“US – Corrosion-Resistant Steel Sunset Review”).
24 United States – Continued Zeroing, DSR 2009:III, p. 1291, para. 312.
25 United States – Anti-Dumping Administrative Reviews and Other Measures Related to Imports of Certain Orange Juice from
Brazil, WT/DS382/R, DSR 2011:VII, p. 3753.
26 See e.g., United States - Anti-Dumping Measure on Shrimp from Ecuador, WT/DS335/R (2007), DSR, 2007:II, p. 425; Panel
Report, United States - Measures Relating to Shrimp from Thailand, WT/DS343/R, as modified by WT/DS343/AB/R, WT/
DS345/AB/R (2008), DSR 2008:VI, p.2539; United States – Anti-Dumping Measures on Certain Shrimp from Viet Nam, WT/
DS404/R (2011), DSR 2011:X, p. 5301; United States – Anti-Dumping Measures on Certain Shrimp from Viet Nam, WT/DS429/R
and Add.1, upheld by WT/DS429/AB/R (2011) and Corr.1.
27 77 Fed. Reg. 8101 (14 February 2012).
28 71 Fed. Reg. 77722 (27 December 2006).
29 United States – Anti-Dumping and Countervailing Measures on Large Residential Washers from Korea, WT/DS464/AB/R
(2016) and Add.1.
30 United States – Certain Methodologies and their Application to Anti-Dumping Proceedings Involving China, WT/DS471/R
(2016).
31 United States – Continued Zeroing, WT/DS350,/AB/R (2009), DSR 2009:III, p. 1291, para. 306.
CHAPTER 13 | CASE STUDY C
Case Study C:
International Rules Against
Discriminatory Treatment of Imports:
Taxation of Alcoholic Beverages
Iain MacVay *

1.0 Introduction
Governments regulate to protect public health and raise revenue. However,
government regulatory policies, in particular tax policies, may also affect the
competitive position of traders and may make imported products uncompetitive.
Regulatory policies may also disrupt supply chains, limiting or eliminating the
economic benefits of trade.
This case study focuses on the spirits industry’s response to government tax laws that
violated WTO commitments by discriminating against imports. It demonstrates the
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continued importance of the WTO, in particular Article III:2 of GATT 1994 (see Chapter
Two, Section 6.3.2), which has been at the heart of WTO disputes brought by
governments on behalf of the alcoholic beverage industry.
The spirits industry has been very successful in challenging discriminatory tax
schemes, using a variety of channels to address its concerns. A central element of the
industry’s success has been its ability to assemble the necessary evidence with
respect to the competitive effect of discriminatory policies, in order to persuade WTO
Member Governments to initiate WTO disputes on its behalf – necessary because
private parties cannot bring disputes to the WTO. Each of the four concluded cases
brought by a Member government resulted in changes to government taxation
policies that eliminated the discrimination in favour of domestic products, following
findings that the taxes in question violated Article III:2. Each case reaffirmed core legal
principles and made factual findings that could be applied in discussions with other
WTO Member governments. The principles established in the cases helped the
industry persuade other governments to drop discriminatory tax policies without the
need to resort to formal dispute settlement. The cases also demonstrate that the
industry is prepared to take its concerns to Member governments and to work closely
with these governments if WTO dispute settlement is necessary.
Relevant GATT and WTO cases are briefly summarised below, and the discussion then
turns to the role of industry in supporting the litigation and to “lessons learned” that
should help representatives from other business sectors develop strategies for
challenging discriminatory trade measures, in particular discriminatory taxation schemes.
* Iain MacVay is a London-based Partner in King & Spalding’s International Trade Practice.

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CHAPTER 13 | CASE STUDY A

usually achieved at the end of the day.

2.0 Background on the COOL Legislation and Regulations

INTERNATIONAL CHAMBER OF COMMERCE (ICC) | 297

298 | INTERNATIONAL CHAMBER OF COMMERCE (ICC)

3.0 The WTO Litigation

processing exclusively domestic livestock and a disincentive against handling imported

INTERNATIONAL CHAMBER OF COMMERCE (ICC) | 299

300 | INTERNATIONAL CHAMBER OF COMMERCE (ICC)

The threat of retaliation proved successful. On 18 December 2015, Congress repealed

4.0 Lessons Learned

process would be desirable. Until that happens, though, a strategy of persistence is

INTERNATIONAL CHAMBER OF COMMERCE (ICC) | 301

302 | INTERNATIONAL CHAMBER OF COMMERCE (ICC)

https://www.wto.org/english/news_e/news15_e/dsb_18dec15_e.htm; see also DSB, Minutes of Meeting, 21 December 2015,

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304 | INTERNATIONAL CHAMBER OF COMMERCE (ICC)

difficult to resolve. Examples include situations involving non-trade policy

2.0 The Zeroing Disputes

INTERNATIONAL CHAMBER OF COMMERCE (ICC) | 305

The question at issue in the zeroing disputes is whether it is permissible for

2.1 The Bed Linen Case

306 | INTERNATIONAL CHAMBER OF COMMERCE (ICC)

2.2 Subsequent Cases

EC, attacked US use of a similar “zeroing” practice. In US – Softwood Lumber V,16 US

In Softwood Lumber V, the US Department of Commerce did something unusual in

INTERNATIONAL CHAMBER OF COMMERCE (ICC) | 307

2.3 Zeroing Revived – Targeted Dumping

308 | INTERNATIONAL CHAMBER OF COMMERCE (ICC)

Unsurprisingly, these developments have generated another spate of WTO disputes,

INTERNATIONAL CHAMBER OF COMMERCE (ICC) | 309

310 | INTERNATIONAL CHAMBER OF COMMERCE (ICC)

INTERNATIONAL CHAMBER OF COMMERCE (ICC) | 311

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