Revisiting U.S. country of origin labeling trade damage estimates how does an equilibrium displacement model perform under different scenarios

Abstract

AbstractMexico and Canada successfully challenged the U.S. mandatory country of origin labeling (COOL) requirements for beef and pork as inconsistent with World Trade Organization (WTO) rules, which ultimately led to arbitration over the level of trade lost due to the COOL measure. During this phase of the dispute, Mexico, Canada, and the United States provided the Arbitration Panel with estimates of the trade losses caused by COOL that were produced using different quantitative methods. The U.S. estimates were based on an equilibrium displacement model (EDM). This article presents a version of the EDM used by the U.S. Government to calculate trade losses due to COOL. The Panel developed its own analysis combining econometric analysis and an EDM that used only supply‐side information to calculate changes in Canadian and Mexican livestock trade. The U.S. EDM includes both the supply and demand sides of the market. We use the U.S. EDM and the Panel's assumptions to re‐estimate the value of lost trade due to COOL. The inclusion of demand‐side effects and domestic COOL costs produces lower estimated trade damages than those produced using the Panel's analysis, validating the EDM as a useful quantitative tool for this type of trade policy analysis.