This past spring, Italy extended a labelling requirement on pasta through 2021. The label identifies where the wheat used to make the pasta is grown and milled. Italy says its consumers need the label to keep informed about food ingredients. That’s debatable. What isn’t debatable is that this “country of origin” label (COOL) is among the most ingenious protectionist measures ever, and is gaining in popularity around world. In fact, COOL may soon make a comeback in the United States.
Italy’s measure identifies where the wheat is grown and milled, and labels the pasta as being from “EU countries,” “non-EU countries,” “EU and non-EU countries” or “Italy,” with or without the help of “EU countries” or “non-EU countries.” This means producers need to audit the two steps by country or countries, and this is costly. But if producers only use wheat grown and milled in Italy, these audit costs fall off dramatically. The genius of COOL is that it raises the price of sourcing foreign ingredients, not with a tariff, but a label.
COOL’s impact on imports increases as the number of steps and countries to be audited grows. While Italy’s pasta label covers two steps, the country’s rice label covers three: i.e., where the rice is grown, processed and packaged. Many COOL regimes build on this trinity. In milk, for instance, eight European countries, including Italy, label by where it’s sourced, processed and packaged. A decades-old U.S. COOL measure traced meat to where cattle and hogs were born, raised and slaughtered. This, however, was found illegal by the World Trade Organization (WTO).
Canada and Mexico argued that U.S. COOL was hurting imports of their cattle and hogs by requiring costly record-keeping and verification. Slaughterhouses were incentivized to purchase U.S. over Canadian and Mexican cattle and hogs because their provenance was easier to audit. In particular, the WTO said that the amount of information being collected up the value chain was far greater than what was conveyed to consumers. The exceptions, notably for restaurants, plus the fact that the designations for cows and pigs that crossed borders weren’t clear, did not help the US’s case.
Proponents of COOL thought they had found a work-around: convey more information on the label. The problem is that information-rich labels may baffle consumers. Take, as a case in point, the Italian pasta label. Listing “Italy” plus “non-EU countries” is confusing enough, but it might be nearly impossible to read if it required identifying Italian regions, all EU and non-EU countries, and set out several more steps.
In fact, the U.S. tried to revise its COOL by conveying more information, but this was also struck down by the WTO. There’s a fundamental weakness in COOL measures: The most telling information that they convey is whether ingredients, for example, are domestic versus foreign.
At the time of its WTO loss, the U.S. observed that 67 other countries had COOL regimes in place. The fact that so many have been launched since that time makes clear that few, if any, countries have been deterred. The main break on these efforts is domestic opposition. Costs of compliance wreak havoc at home, not just abroad. In the case of milk, for example, the fight to stop COOL regimes has come from industry associations, emboldened by a recent legal opinion from the European Union’s advocate general, Gerard Hogan, that these regimes “pave the way to purely nationalistic—even chauvinistic—instincts.”
Back to Italy, where the extension of the labels coincided with a flood of wheat and rice imports. If consumers were willing to pay for origin information about ingredients, there might be a case for voluntary labels. Yet, as the WTO discovered with respect to U.S. COOL, the cost of labels “cannot be fully passed on to consumers.” This explains why COOL is mandatory, backed by a government.
In the end, Italy’s pasta label hurts the consumers it claims to help by raising prices and reducing variety at the store. Interestingly, last spring, just as Italy extended its pasta label, the U.S. Department of Agriculture announced that it, too, would revisit COOL. It’s just too tempting.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, a nonresident senior fellow at the Atlantic Council and host of the podcast TradeCraft.
Source: Thanks https://thehill.com/opinion/international/520556-italys-pasta-label-is-cool-protectionism