The futility of ‘Product of USA’ labeling in a world of global supply chains

Earlier this month, Secretary of Agriculture Tom Vilsack vowed to clear up what it means to label beef as a “Product of USA.” He insists a revamped label won’t violate global trade rules because compliance will be voluntary, not mandatory. If only it were that simple.

The distinction between mandatory and voluntary labels is important, and Vilsack knows this better than most. That’s because he once wrote a letter – known as the “Vilsack letter” – on how to implement the U.S.’s country-of-origin label (COOL) on cattle and hogs in the early 2000s, and Canada and Mexico used it to strike down COOL at the World Trade Organization (WTO). Canada and Mexico argued the “Vilsack letter” made COOL mandatory, even though the U.S. claimed otherwise. The WTO agreed that COOL was mandatory, that it incentivized American slaughterhouses to buy U.S. over Canadian and Mexican meat and that it thus ran afoul of global trade rules.

This time around, Vilsack is betting that, whereas COOL got into trouble because it was a mandatory label, a new “Product of USA” label will be fine, so long as it’s voluntary. This may be wishful thinking. 

The WTO certainly has a better legal grasp of mandatory labels. But it’s not true that the institution can’t deal with voluntary ones. As Brazil suggested back in 2012, the question is how voluntary is voluntary. 

Brazil asked this in the context of so-called private-sector health and safety standards. In particular, Brazil had GlobalGAP in mind, a “farm-to-fork” voluntary standard backed by grocery stores, not governments. Brazil argued that GlobalGAP is really de facto mandatory because the shelves of European grocers were only stocked with GlobalGAP-certified food. Put differently, if the bulk of the market is voluntarily GlobalGAP, then this standard is de facto mandatory.

A new “Product of USA” label would hardly be the only one for which this logic could be a problem. The European Union (EU), for example, has proposed an animal welfare label that is also voluntary, but potentially de facto mandatory. 

Then there are the usual problems with labels of this sort. First, can they be defined in a way that isn’t just correlated with domestic versus foreign? The EU animal welfare label is likely to build on a French voluntary standard used by Carrefour and others. It’s based on 230 criteria, many of which reflect unique French husbandry practices, not necessarily sound science. 

In the case of “Product of USA,” the U.S. Department of Agriculture has been emboldened by a Federal Trade Commission vote to redefine “Made in USA,” but there is no agreement on what this will mean. There’s an “all or virtually all” threshold with respect to inputs that has support, but this is opposed by U.S. producers with more globally integrated supply chains, let alone foreign ones.

Second, can any exceptions be written in a way that doesn’t violate the WTO’s principle of national treatment? The EU, for example, wants its animal welfare label to be “achievable by all” of its members. This raises the possibility that EU producers will be more readily able to use exceptions than foreign producers. Similarly, the Federal Trade Commission has entertained an “unavailability exemption” from the “all or virtually all” standard, which could be a lot easier to get by U.S. versus foreign producers. 

US COOL on cattle and hogs was creative protectionism. It was stealth-like, shrouded in talk about informing consumers (even though few Americans understood the label), and disrupted U.S. supply chains with Canada and Mexico, all without a tariff. Will a new “Product of USA” label turn out to be a repeat of COOL? Vilsack clearly wants much the same content, like where the cow was “born,” “raised” and “slaughtered.” If the idea is that all will be good if the label is voluntary, it won’t.

The good news is that Vilsack says he wants a “Product of USA” label that is consistent with the country’s “international trade obligations.” For the sake of U.S. agricultural exports, he should go on the offense and demand the same from all the COOL regimes being implemented by our trade partners, like Italy’s on pasta, the EU’s on milk and the many others that now dot the landscape of the global economy. 

There’s no good way to clarify “Product of USA” when U.S. firms depend on global supply chains. Americans want information on the things they eat, especially on health and safety, but that’s not what they learn from COOL or “Product of USA” labels. As the EU’s advocate general, Gerard Hogan, explained in a legal opinion, these labels only serve to tap “purely nationalistic – even chauvinistic – instincts.” 

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University. Follow him on Twitter @marclbusch.