The U.S. has lost a key round at the World Trade Organization in a trade dispute with Canada and Mexico over meat labeling, according to people familiar with the WTO’s findings.
Canada and Mexico opposed a new U.S. rule that requires more information on labels about the origins of beef, pork and other meats, which went into effect in November. They took their case to the WTO, saying the rule hurts their competitiveness. The WTO panel that heard oral arguments in the dispute over the so-called country-of-origin labeling rule earlier this year has decided in favor of Canada and Mexico, according to sources familiar with the panel’s confidential report.
The report, which the three governments have received, is expected to be made public in late September or early October, these sources said.
“We all know what the report says. The U.S. lost,” according to one person with knowledge of the report.
“We do for a fact know that the ruling, when it is made public, will be in favor of Canada and Mexico,” another source said.
“We do for a fact know that the ruling, when it is made public, will be in favor of Canada and Mexico,” another source said.
The U.S. Department of Agriculture issued the new rule after a WTO finding in 2012 that an earlier version was discriminatory. But Canada and Mexico said the amended rule was even more onerous, and limited exports of cattle and hogs into the U.S from their countries. The animals end up being sold at a discount to those from the U.S., they said.
According to WTO rules, the U.S. will have 60 days to appeal from the time the report is made public. Ottawa has to wait until the appeal process is exhausted to get the WTO’s approval to retaliate, which isn’t expected until late next year.
The developments could push the three partners of the North American Free Trade Agreement closer to a potential trade war. Canada, which estimates its cattle and hog industries suffer annual losses of over one billion Canadian dollars ($911.5 million) from the U.S. labeling rule, has threatened to retaliate with punitive tariffs on a range of U.S. imports including chocolate, cornflakes, fruit and potatoes. Canadian officials have said they would wait for WTO approval before taking any action.
U.S. lawmakers who want the labeling rule changed have warned about the economic toll of retaliation. A brief section in the spending bill passed by Congress earlier this year said the U.S. economy could suffer a $2 billion hit if Canada and Mexico made good on their threats to retaliate.
Several government and industry officials in Canada and the U.S. said they have been briefed on the WTO panel’s report, but declined to discuss the findings.
Representatives for Canadian Trade Minister Ed Fast and Canadian Agriculture Minister Gerry Ritz said Canada would comply with WTO rules and only comment once the report is made public. But both renewed Canada’s threats of retaliation.
“The [Canadian] government remains steadfast in taking whatever steps may be necessary, including retaliation, to achieve a fair resolution,” Mr. Ritz’s spokesman, Jeffrey English, said in an email.
A spokesman for the U.S. Trade Representative said the report will be circulated to WTO members and will be made public when it is completed and translated, expected later this year.
Big U.S. meatpackers also oppose the meat-labeling rules, saying they drive up costs for the industry.
Proponents of the meat-labeling rules say they provide more information for consumers wary of products from countries with less-stringent safety rules.
Toronto-based Canadian international trade lawyer Lawrence Herman said it would be “unfortunate” if the three countries cannot settle the issue and end up in a trade war.
“It would be a bad signal to the rest of the world that the Nafta countries could not resolve an issue among themselves,” Mr. Herman said.
Santiago Perez contributed to this article.
