WT/DS384/ARB  
WT/DS386/ARB  
 
7 December 2015  
(15-6445)  Page: 1/82  
  Original: English  
 
 UNITED STATES – CERTAIN COUNTRY OF ORIGIN LABELLING (COOL) 
REQUIREMENTS  
 
RECOURSE TO ARTICLE 22.6 OF TH E DSU BY THE UNITED STATES 
DECISIONS BY THE ARBITRATOR 
 
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  TABLE OF CONTENTS 
 
1   INTROD UCTION  ........................................................................................................ 10  
1.1   Initial proceedings .................................................................................................... 10 
1.2   Request for arbitratio n and arbitratio n proceedings........................................................ 11 
2   PROCEDURAL  ISSUES ................................................................................................ 12  
2.1   Whether the objection to Mexico's re quest was properly refe rred to arbi tration .................. 12 
2.2   Third-Pa rty Righ ts .................................................................................................... 16 
3   MAIN ARGUMENTS OF THE PARTIES ......................................................................... 17  
3.1   Overview of the nullification or im pairment claimed by Canada and Mexico ....................... 18 
3.2   The relevant counterfactual ........................................................................................ 19 
3.3   The United States' three-pronged challenge against the levels of suspension 
proposed by Cana da and Mexico ........................................................................................ 20 
3.4   Canada's and Mexico 's arguments on the EDM .............................................................. 20 
4   PRELIMINARY ISSUES ............................................................................................... 21  
4.1   Mandate of the Arbitrator .......................................................................................... 21 
4.2   Burden  of proof ........................................................................................................ 22 
4.3   Order of  analysis ...................................................................................................... 23 
5   ASSESSMENT OF THE PROPOS ED LEVEL OF SU SPENSION ......................................... 24  
5.1   Inclusion of domestic price suppressi on losses in the level of nullification and 
impairment .................................................................................................................... . 24 
5.1.1   Arguments of the parties ........................................................................................ 24 
5.1.2   Analysis by the Arbitrator ........................................................................................ 25 
5.2   Calculation of Lo st Export Revenues ............................................................................ 31 
5.2.1   Price impact estimation ........................................................................................... 33 
5.2.2   Quantity im pact estimation ..................................................................................... 49 
5.2.3   Data  issues ...........................................................................................................  54 
5.3   Conclusion on Assessment of Proposed Level of Suspension ............................................ 61 
6   THE ARBITRATOR'S OWN DETERMINAT ION OF THE LEVEL OF NULLIFICATION 
OR IMPAIRMENT ............................................................................................................ 61  
6.1   Introduction ............................................................................................................. 61 
6.2   Description of the EDM meth odology ........................................................................... 62 
6.2.1   Arguments of the parties ........................................................................................ 63 
6.2.2   Analysis by the Arbitrator ........................................................................................ 64 
6.3   Arbitrator's own calculation of nullification or impairment ............................................... 67 
6.3.1   Overview of the methodological approach .................................................................. 67 
6.3.2   Price basis estimation ............................................................................................. 68 
6.3.3   Elasticity-based simulation of the change in export quantities ....................................... 73 
6.3.4   Export re venue loss results ..................................................................................... 79 
7   CONCLUSION AND DECISION IN  RESPECT OF CANADA (DS384) ............................... 81  
7   CONCLUSION AND DECISION IN  RESPECT OF MEXI CO (DS386) ............................... 82  WT/DS384/ARB ● WT/DS386/ARB 
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  LIST OF ANNEXES 
ANNEX A 
WORKING PROCEDURES OF THE ARBITRATOR 
Contents Page 
Annex A-1 Working Procedures of the Arbitrator (WT/DS384) A-2 
Annex A-2 Working Procedures of the Arbitrator (WT/DS386) A-5 
Annex A-3 Procedures for an Open Substantive Meeting of the Arbitrator (WT/DS384) A-8 
Annex A-4 Procedures for an Open Substantive Meeting of the Arbitrator (WT/DS386) A-9 
Annex A-5 Procedures of the Arbitrator Conc erning Business Confidential Information 
(WT/DS384) A-10 
Annex A-6 Procedures of the Arbitrator Concerni ng Business Confidential Information 
(WT/DS386) A-11 
 
ANNEX B 
ARGUMENTS OF THE PARTIES 
Contents Page 
Annex B-1 Executive summary of the arguments of Canada B-2 
Annex B-2 Executive summary of the arguments of Mexico B-13 
Annex B-3 Executive summary of the arguments of the United States B-26 
 
ANNEX C 
ARBITRATOR'S DETERMINATION – DETAILS ON CALCULTATIONS 
Contents Page 
Annex C-1 Econometric results C-2 
Annex C-2 Export supply elasticity calculations C-10 
 
 
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  WTO AND GATT CASES CITED IN THESE DECISIONS 
Short Title Full Case Title and Citation 
Argentina – Footwear (EC) Appellate Body Report, Argentina – Safeguard Measures on Imports of 
Footwear , WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, p. 515 
Brazil – Aircraft 
(Article 22.6 – Brazil) Decision by the Arbitrators, Brazil – Export Financing Programme for Aircraft 
– Recourse to Arbitration by Brazil under Article 22.6 of the DSU and 
Article 4.11 of the SCM Agreement , WT/DS46/ARB, 28 August 2000, 
DSR 2002:I, p. 19 
Canada – Aircraft Credits and 
Guarantees (Article 22.6 – Canada) Decision by the Arbitrator, Canada – Export Credits and Loan Guarantees for 
Regional Aircraft – Recourse to Arbitration by Canada under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement , WT/DS222/ARB, 
17 February 2003, DSR 2003:III, p. 1187 
EC – Asbestos Panel Report, European Communities – Measur es Affecting Asbestos and 
Asbestos-Containing Products , WT/DS135/R and Add.1, adopted 5 April 
2001, as modified by Appellate Body Report WT/DS135/AB/R, 
DSR 2001:VIII, p. 3305 
EC – Bananas III (US) 
(Article 22.6 – EC) Decision by the Arbitrators, European Communitie s – Regime for the 
Importation, Sale and Distribution of Bananas – Recourse to Arbitration by 
the European Communities unde r Article 22.6 of the DSU , WT/DS27/ARB, 
9 April 1999, DSR 1999:II, p. 725 
EC – Bananas III (Ecuador) 
(Article 22.6 – EC) Decision by the Arbitrators, European Communitie s – Regime for the 
Importation, Sale and Distribution of Bananas – Recourse to Arbitration by 
the European Communities unde r Article 22.6 of the DSU , 
WT/DS27/ARB/ECU, 24 March 2000, DSR 2000:V, p. 2237 
EC – Citrus  GATT Panel Report, European Community – Tariff Treatment on Imports of 
Citrus Products from Certain Count ries in the Mediterranean Region , L/5776, 
7 February 1985, unadopted ]
EC – Export Subsidies on Sugar Appellate Body Report, European Communities – Export Subsidies on Sugar , 
WT/DS265/AB/R, WT/DS266/AB/R, WT/D S283/AB/R, adopted 19 May 2005, 
DSR 2005:XIII, p. 6365 
EC – Hormones (Canada) 
(Article 22.6 – EC) Decision by the Arbitrators, European Communities – Measures Concerning 
Meat and Meat Products (Hormones) , Original Complaint by Canada – 
Recourse to Arbitration by the Europe an Communities under Article 22.6 of 
the DSU , WT/DS48/ARB, 12 July 1 999, DSR 1999:III, p. 1135 
EC – Hormones (US) 
(Article 22.6 – EC) Decision by the Arbitrators, European Communities – Measures Concerning 
Meat and Meat Products (Hormones), Original Complaint by the United 
States – Recourse to Arbitration by the European Communities under 
Article 22.6 of the DSU , WT/DS26/ARB, 12 July 1999, DSR 1999:III, p. 1105 
EC – Seal Products Appellate Body Reports, European Communities – Measures Prohibiting the 
Importation and Marketing of Seal Products , WT/DS400/AB/R / 
WT/DS401/AB/R, adopted 18 June 2014 
EEC – Oilseeds I  GATT Panel Report, European Economic Comm unity – Payments and 
Subsidies Paid to Processors and Producers of Oilseeds and Related Animal-
Feed Proteins , L/6627, adopted 25 January 1990, BISD 37S/86 
EEC – Oilseeds II GATT Panel Report, European Economic Community – Follow-Up on the 
Panel Report "Payments an d Subsidies Paid to Processors and Producers of 
Oilseeds and Related Animal-Feed Proteins ", DS28/R, 31 March 1992, 
BISD 39S/91 
India – Patents (US) Appellate Body Report, India – Patent Protection  for Pharmaceutical and 
Agricultural Chemical Products , WT/DS50/AB/R, adopted 16 January 1998, 
DSR 1998:I, p. 9 
Japan – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages , 
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, 
DSR 1996:I, p. 97 
Japan – Film Panel Report, Japan – Measures Affecting Cons umer Photographic Film and 
Paper , WT/DS44/R, adopted 22 April 1998, DSR 1998:IV, p. 1179 
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguar d Measure on Imports of WT/DS384/ARB ● WT/DS386/ARB 
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  Short Title Full Case Title and Citation 
Certain Dairy Products , WT/DS98/AB/R, adopted 12 January 2000, 
DSR 2000:I, p. 3 
Mexico – Corn Syrup 
(Article 21.5 – US) Appellate Body Report, Mexico – Anti-Dumping Investigation of High 
Fructose Corn Syrup (HFCS) from the United States – Recourse to 
Article 21.5 of the DSU  by the United States , WT/DS132/AB/RW, adopted 
21 November 2001, DSR 2001:XIII, p. 6675 
US – 1916 Act Appellate Body Report, United States – Anti-Dumping Act of 1916 , 
WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000, 
DSR 2000:X, p. 4793 
US – 1916 Act (EC) 
(Article 22.6 – US) Decision by the Arbitrators, United States – Anti-Dumping Act of 1916, 
Original Complaint by the European Co mmunities – Recourse to Arbitration 
by the United States under Article 22.6 of the DSU , WT/DS136/ARB, 
24 February 2004, DSR 2004:IX, p. 4269 
US – Anti-Dumping and 
Countervailing Duties (China) Appellate Body Report, United States – Definitive Anti-Dumping and 
Countervailing Duties on Certain Products from China , WT/DS379/AB/R, 
adopted 25 March 2011, DSR 2011:V, p. 2869 
US – COOL Appellate Body Reports, United States – Certain Country of Origin Labelling 
(COOL) Requirements , WT/DS384/AB/R / WT/DS386/AB/R, adopted 23 July 
2012, DSR 2012:V, p. 2449 
US – COOL Panel Reports, United States – Certain Country of Origin Labelling (COOL) 
Requirements , WT/DS384/R / WT/DS386/R, adopted 23 July 2012, as 
modified by Appellate Body Reports WT/DS384/AB/R / WT/DS386/AB/R, 
DSR 2012:VI, p. 2745 
US – COOL 
(Article 21.3(c)) Award of the Arbitrator, United States – Certain Country of Origin Labelling 
(COOL) Requirements  – Arbitration under Article 21.3(c) of the DSU , 
WT/DS384/24, WT/DS386/23, 4 Dece mber 2012, DSR 2012:XIII, p. 7173 
US – COOL 
(Article 21.5 – Canada and 
Mexico)  Appellate Body Reports, 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, adopted 29 May 2015 
US – COOL 
(Article 21.5 – Canada and Mexico)  Panel Reports, 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 / WT/DS386/RW and Add.1, adopted 29 May 2015, as modified by Appellate Body Reports WT/DS384/AB/RW / WT/DS386/AB/RW 
US – FSC 
(Article 22.6 – US) Decision by the Arbitrator, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Arbitr ation by the United States under 
Article 22.6 of the DSU and Article 4.11 of the SCM Agreement , 
WT/DS108/ARB, 30 August 2002, DSR 2002:VI, p. 2517 
US – Gambling 
(Article 22.6 – US) Decision by the Arbitrator, United States – Measures Affecting the 
Cross-Border Supply of Gambling and Betting Services – Recourse to Arbitration by the United States under Article 22.6 of the DSU , 
WT/DS285/ARB, 21 December 2007, DSR 2007:X, p. 4163 
US – Gasoline Appellate Body Report, United States – Standards for Reformulated and 
Conventional Gasoline , WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 
p. 3 
US – Large Civil Aircraft 
(2nd complaint) Appellate Body Report, United States – Measures Affecting Trade in Large 
Civil Aircraft (Second Complaint) , WT/DS353/AB/R, adopted 23 March 2012, 
DSR 2012:I, p. 7 
US – Offset Act 
(Byrd Amendment) (Brazil) 
(Article 22.6 – US) Decision by the Arbitrator, United States – Continued Dumping and Subsidy 
Offset Act of 2000, Original Complaint by Brazil – Recourse to Arbitration by 
the United States under Article 22.6 of the DSU , WT/DS217/ARB/BRA, 
31 August 2004, DSR 2004:IX, p. 4341 
US – Offset Act 
(Byrd Amendment) (Canada)  (Article 22.6 – US) Decision by the Arbitrator, United States – Continued Dumping and Subsidy 
Offset Act of 2000, Original Complaint by Canada – Recourse to Arbitration by the United States under Article 22.6 of the DSU , WT/DS234/ARB/CAN, 
31 August 2004, DSR 2004:IX, p. 4425 
US – Offset Act 
(Byrd Amendment) (Chile) 
(Article 22.6 – US) Decision by the Arbitrator, United States – Continued Dumping and Subsidy 
Offset Act of 2000, Original Complaint by Chile – Recourse to Arbitration by 
the United States under Article 22.6 of the DSU , WT/DS217/ARB/CHL, 
31 August 2004, DSR 2004:IX, p. 4511 WT/DS384/ARB ● WT/DS386/ARB 
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  Short Title Full Case Title and Citation 
US – Offset Act 
(Byrd Amendment) (EC) (Article 22.6 – US) Decision by the Arbitrator, United States – Continued Dumping and Subsidy 
Offset Act of 2000, Original Complaint by the European Communities – Recourse to Arbitration by the United States under Article 22.6 of the DSU , 
WT/DS217/ARB/EEC, 31 August 2004, DSR 2004:IX, p. 4591 
US – Offset Act 
(Byrd Amendment) (India) 
(Article 22.6 – US) Decision by the Arbitrator, United States – Continued Dumping and Subsidy 
Offset Act of 2000, Original Complaint by India – Recourse to Arbitration by 
the United States under Article 22.6 of the DSU , WT/DS217/ARB/IND, 
31 August 2004, DSR 2004:X, p. 4691 
US – Offset Act 
(Byrd Amendment) (Japan) (Article 22.6 – US) Decision by the Arbitrator, United States – Continued Dumping and Subsidy 
Offset Act of 2000, Original Complaint by Japan – Recourse to Arbitration by the United States under Article 22.6 of the DSU , WT/DS217/ARB/JPN, 
31 August 2004, DSR 2004:X, p. 4771 
US – Offset Act 
(Byrd Amendment) (Korea) 
(Article 22.6 – US) Decision by the Arbitrator, United States – Continued Dumping and Subsidy 
Offset Act of 2000, Original Complaint by Korea – Recourse to Arbitration by 
the United States under Article 22.6 of the DSU , WT/DS217/ARB/KOR, 
31 August 2004, DSR 2004:X, p. 4851 
US – Offset Act 
(Byrd Amendment) (Mexico) 
(Article 22.6 – US) Decision by the Arbitrator, United States – Continued Dumping and Subsidy 
Offset Act of 2000, Original Complaint by Mexico – Recourse to Arbitration 
by the United States under Article 22.6 of the DSU , WT/DS234/ARB/MEX, 
31 August 2004, DSR 2004:X, p. 4931 
US – Section 110(5)  
Copyright Act  
(Article 25) Award of the Arbitrators, United States – Section 110(5) of the US Copyright 
Act – Recourse to Arbitration under Article 25 of the DSU , 
WT/DS160/ARB25/1, 9 November 2001, DSR 2001:II, p. 667 
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, p. 3 
US – Upland Cotton 
(Article 22.6 – US II) Decision by the Arbitrator, United States – Subsidies on Upland Cotton  
– Recourse to Arbitration by the United  States under Article 22.6 of the DSU 
and Article 7.10 of the SCM Agreement , WT/DS267/ARB/2 and Corr.1, 
31 August 2009, DSR 2009:IX, p. 4083 
 
 
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  ABBREVIATIONS USED IN THESE DECISIONS 
Abbreviation Description 
2002 Farm Bill  Farm Security and Rural Investment Act of 2002, Public Law No. 107-171, 
Section 10816, 116 Stat. 134  
2008 Farm Bill  Food, Conservation, and Energy Act of 2008, Public Law No. 110-234, 
Section 11002, 122 Stat. 923  
2009 Final Rule  Final Rule on Mandatory Country of Origin Labeling of Beef, Pork, Lamb, 
Chicken, Goat Meat, Wild and Farm-Rai sed Fish and Shellfish, Perishable 
Agricultural Commodities, Peanuts, Pe cans, Ginseng, and Macadamia Nuts, 
United States Federal Register , Vol. 74, No. 10 (15 January 2009), 
pp. 2658-2707  
2013 Final Rule  Final Rule on Mandatory Country of Origin Labeling of Beef, Pork, Lamb, 
Chicken, Goat Meat, Wild and Farm-Rai sed Fish and Shellfish, Perishable 
Agricultural Commodities, Peanuts, Pe cans, Ginseng, and Macadamia Nuts, 
United States Federal Register , Vol. 78, No. 101 (24 May 2013), 
pp. 31367-31385  
amended COOL measure COOL statute together with the 2009 Final Rule, as amended by the 
2013 Final Rule 
AMS Agricultural Marketing Service of the USDA 
BCI business confidential information  
compliance panel panel in the Article 21.5 compliance proceedings in US – COOL  
COOL  country of origin labelling 
COOL statute  Agricultural Marketing Act of 1946, 60 Stat. 1087, United States Code , Title 7, 
Section 1621 et seq., as amended by the 2002 Farm Bill and the 2008 Farm Bill  
DSB Dispute Settlement Body  
DSU Understanding on Rules and Procedures Go verning the Settlement of Disputes  
GATS General Agreement on Trade in Services 
GATT 1994  General Agreement on Tariffs and Trade 1994 
original COOL measure COOL statute together with the 2009 Final Rule  
original panel  panel in the original proceedings in US – COOL   
TBT Agreement  Agreement on Technical Barriers to Trade 
USDA  United States Depart ment of Agriculture 
Working Procedures  Working Procedures of the Arbitrator 
WTO World Trade Organization  
WTO Agreement Marrakesh Agreement Esta blishing the World Trade Organization 
 
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  EXHIBITS CITED IN THESE DECISIONS 
Exhibit No. Title 
CAN-7 BCI 
CAN-8 BCI 
CAN-19 BCI 
CAN-35 Weekly cattle data for econometrics 
CAN-36 Weekly pig data for econometrics 
CAN-52 BCI 
CAN-55 (and 
MEX-9) Informa Economics, Update of Cost Assessments for Coun try of Origin Labeling – Beef & 
Pork (2009)  (June 2010) 
CAN-68 Weekly cattle data used for regressions with variables 
CAN-69 Weekly hog data used for regressions with variables 
CAN-82 Feeder Pigs Monthly Import Data 
CAN-86 K. Grier, "Livestock Price Discovery In  Canada", (George Morris Centre, October 2010)  
CAN-89 US and Canada Weekly Hog Prices 
CAN-90 Agricultural Marketing Guide: Alberta Agri culture and Forestry, "Economics and Marketing: 
Predicting Feeder Cattle Prices"  
CAN-91 US and Canada Weekly Cattle Prices 
CAN-95 BCI 
MEX-2, Appendix 
1 Weekly Texas and New Mexico Feeder Cattle Prices 
MEX-2, Appendix 
2 Price of Mexican Feeder Cattle Exported to the United States 
MEX-2, Appendix 
8 J. M. Marsh, "Impacts of Declining U.S. Retail Beef Demand on Farm-Level Beef Prices and 
Production", American Journal of Agricultural Economics , Vol. 85 (November 2003) 
MEX-2, Appendix 
10 D. Peel et al., "Cow-Calf Beef Production in Mexico", Report from the Economic Research 
Service (USDA) , LDP-M-196-01 (November 2010) 
MEX-2, Appendix 
11 D. Peel et al., "Trade, the Expanding Mexi can Beef Industry, and Feedlot and Stocker 
Cattle Production in Mexico", Report from the Economic Research Service (USDA) , LDP-M-
206-01 (August 2011) 
MEX-2, Appendix 
12 D. Pendell et al., "AJAE Appendix: Animal Identification and Tracing in the United States", 
American Journal of Agricultural Economics , Vol. 92 (5 March 2010) 
MEX-2, Appendix 
15 USDA Office of the Chief Economist, Report to  Congress, "Economic Analysis of Country of 
Origin Labeling (COOL)" (April 2015) 
MEX-2, Appendix 
A to Appendix 15 G. Tonsor, T. Schroder, and J. Parcell,  Economic Impacts of 2009 and 2013 U.S. Country-
of-Origin Labeling Rules on U. S. Beef and Pork Markets, Project Number AG-3142-P-14-
0054 R0, Final Report submitted to the USDA Office of the Chief Economist, (26 January 2015) 
MEX-26 Statement of Confederación Nacional de Organizaciones Ganaderas of 14 September 2015 
MEX-27 USDA Market News, AL_LS626 (3 October 2014) 
MEX-31 J. Vercammen, Agricultural Marketing: Struct ural Models for Price Analysis  (Routledge, 
2011) 
MEX-32 F. Adcock et al., "The Global Competitiven ess of the North American Livestock Industry", 
Choices , Vol 21(3) (2006) 
MEX-33 R. Clemens, "Integration in the North American Livestock and Meat Industries", Iowa Ag 
Review , Vol. 9 (Summer 2003) 
MEX-34 W. Hahn et al., "Market Integration of th e North American Animal Products Complex", 
Report from the Economic Research Service (USDA) , LDP-M-131-01 (May 2005) 
MEX-35 R. Jurenas, "Country-of-Origin-Labeling for Foods", Congressional Research Service , 
(15 July 2010) 
MEX-36  BCI 
MEX-37 Comparison of invoices for Mexican catt le sold through direct sales to AMS  WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  Exhibit No. Title 
MEX-44 Statement of Confederación Nacional de Organizaciones Ganaderas of 30 September 2015 
MEX-46 Satellite map of border crossi ng at Santa Teresa, New Mexico  
MEX-48 US Tax Court, T.C. Memo. 2000-357 (16 November 16 2000) 
USA-3 COOL EDM worksheet with data, parameters, and equations  
USA-4 Guide to the COOL EDM 
USA-30 Wohlgenant, "Market Modeling of the E ffects of Adoption of New Swine Waste 
Management Technologies in North Carolina" (July 2005) 
USA-35 S. Pouliot and D. Sumner, "Differential impacts of country of origin labelling: COOL 
econometric evidence from cattle markets", Food Policy , Vol. 49 (2014) 
USA-51 Market Share Data 
USA-53 Sample Economic Revisions to Cana da's Feeder Cattle Quantity Estimates 
USA-59 Brester et al., "Evaluating the Impacts of the U.S. Department of Commerce's Preliminary 
Imposition of Tariffs on U.S. Imports of Cana dian Live Cattle", Rese arch Discussion Paper 
No. 34 (August 1999)  
USA-61 Sample Econometric Analysis and Data 
USA-76 National Pork Board, "An Economic Analysis  of the Effectiveness of the Pork Checkoff 
Program", Final Report (February 2007) 
USA-80 S.A. Hamilton, "The location of the North American cattle-feeding industry: a nonspatial 
modelling approach", Iowa State University Retrospective Theses and Dissertations  (1991) 
 
 
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  1  INTRODUCTION 
1.1  Initial proceedings  
1.1.  The present arbitration proceedings arise in the disputes initiated by Canada and Mexico 
concerning the United States' country of origin labelling (COOL) requirements for meat products.   
1.2.  On 23 July 2012, the DSB adopted the original  Appellate Body reports in these disputes, and 
the reports of the original panel as modified by the Appellate Body.1 The findings adopted by the 
DSB were that the COOL measure at issue in the original proceedings (the original COOL 
measure2) was inconsistent with Article 2.1 of the TBT Agreement because it accorded less 
favourable treatment to imported livestock than to like domestic livestock.3  
1.3.  On 4 December 2012, following referral to arbitration under Article 21.3(c) of the DSU, an 
arbitrator determined that the reasonable period of time for the United States to implement the 
DSB's recommendations and rulings would expire on 23 May 2013.4 At the DSB meeting on 24 
May 2013, the United States announced that, in order to come into compliance with the DSB's recommendations and rulings, the United States "had  issued a final rule that made certain changes 
to the country-of-origin (COOL) labelling requirements", and that these actions "brought the 
United States into compliance" with those recommendations and rulings.
5  
1.4.  On 19 August 2013, Canada and Mexico requested the establishment of a panel under 
Article 21.5 of the DSU, to determine whether the "amended COOL measure"6 brought the United 
States into compliance.7 On 29 May 2015, the DSB adopted the Article 21.5 Appellate Body reports 
in these disputes, and the reports of the complia nce panel as modified by the Appellate Body.8 The 
findings adopted by the DSB were that the amended COOL measure violated Article 2.1 of the TBT 
Agreement and Article III:4 of the GATT 1994 because it continued to accord less favourable 
treatment to imported livestock than to like domestic livestock.9  
1.5.  On 4 June 2015, Canada filed a request with the DSB for authorization to suspend 
concessions or other obligations under Article 22.2 of the DSU.10 In its request, Canada sought 
authorization to suspend concessions and related obligations in the goods sector under the GATT 1994 to an annual value of CAD 3.068 billion.
11 
                                               
1 WT/DSB/M/320, Item 6 of the Agenda, para. 110.  
2 The "original COOL measure" comprised the COOL  statute together with the 2009 Final Rule. See 
Panel Reports, US – COOL (Article 21.5 – Canada and Mexico) , paras. 7.7-7.9. The statutory provisions of the 
COOL measure were introduced in the US Congress th rough the Farm Security an d Rural investment Act of 
2002, Public Law No. 107-171, section 10816, 116 Stat. 134, 533-535 (the 2002 Farm Bill), which was subsequently amended by the Food, Conservation, an d Energy Act of 2008, Public law No. 110-234, section 
11002, 122 Stat. 923, 1351-1354 (the 2008 Farm Bill). Both Farm Bills subsequently became part of the Agricultural Marketing Act of 1946, codified as United  States Code, Title 7, section 1621 et seq. The COOL 
requirements are contained in section 1638 of Title 7. Th e 2009 Final Rule is titled the Final Rule on Mandatory 
Country of Origin Labeling of Beef, Pork, Lamb, Chicken,  Goat Meat, Wild and Farm-Raised Fish and Shellfish, 
Perishable Agricultural Commodities, Peanuts, Pecans , Ginseng, and Macadamia Nu ts, published in United 
States Federal Register, Vol. 74, No. 10 (15 January 2009), pp. 2658-2707, codified as United States Code of Federal Regulations, Title 7, Part 65—Country of Origin  Labeling of Beef, Pork, Lamb, Chicken, Goat Meat, 
Perishable Agricultural Commodities, Macadamia Nuts, Pecans, Peanuts, and Ginseng. 
3 Panel Reports, US – COOL , para. 8.3; Appellate Body Reports, US – COOL , para. 496(a). 
4 Award of the Arbitrator, US – COOL (Article 21.3(c)) , para. 123.  
5 WT/DSB/M/332, Item 11 of the Agenda, para. 11.1.  
6 The "amended COOL measure" comprised the orig inal COOL measure as amended by the 2013 Final 
Rule issued by the Agricultural Marketing Service (AMS ) of the US Department of Agriculture (USDA). The 2013 
Final Rule is titled the Final Rule on Mandatory Country of Origin Labeling of Beef, Pork, Lamb, Chicken, Goat 
Meat, Wild and Farm-Raised Fish and Sh ellfish, Perishable Agricultural Co mmodities, Peanuts, Pecans, Ginseng, 
and Macadamia Nuts (7 CFR Parts 60 and 65), 78 Fed. Reg. 31367-31385 (24 May 2013).  See also Panel 
Reports, US – COOL (Article 21.5 – Canada and Mexico) , paras. 7.8-7.9. 
7 WT/DS384/26 and WT/DS386/25.  
8 WT/DSB/M/362. 
9 Panel Reports, US – COOL (Article 21.5 – Canada and Mexico) , paras. 8.3 and 8.4; Appellate Body 
Reports, US – COOL (Article 21.5 – Canada and Mexico) , paras. 6.2 and 6.4. 
10 WT/DS384/35. 
11 WT/DS384/35.  WT/DS384/ARB ● WT/DS386/ARB 
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  1.6.  On 4 June 2015, Mexico filed a request for authorization to suspend concessions or other 
obligations under Article 22.2 of the DSU.12 In this initial request, Mexico sought authorization to 
suspend concessions and related obligations in th e goods sector under the GATT 1994 in an annual 
amount of USD 653.5 million.13 On 12 June 2015, Mexico filed a corrigendum, correcting the 
amount to USD 713 million.14 On 17 June 2015, Mexico re-submitted the request for authorization 
to suspend concessions or other obligations in the amount of USD 713 million.15 
1.2  Request for arbitration and arbitration proceedings  
1.7.  On 16 June 2015, the United States communicated to the DSB its objection to Canada's 
proposed level of suspension of concessions or other obligations.16 At its meeting of 17 June 2015, 
the DSB took note that the matter raised by the Un ited States had been referred to arbitration, as 
required by Article 22.6 of the DSU.17  
1.8.  On 22 June 2015, the United States communicated to the DSB its objection to Mexico's 
proposed level of suspension of concessions or other obligations.18 As noted in document 
WT/DS386/37, the parties agreed that the matter had been referred to arbitration under Article 
22.6 of the DSU.19 
1.9.  The arbitration was undertaken by the original panelists, namely: 
Chairperson: Mr Christian Häberli  
Members:  Mr Manzoor Ahmad 
   Mr João Magalhães     
1.10.  A joint organizational meeting was held on  3 July 2015 to discuss procedural aspects of the 
proceedings. At this meeting, all parties agreed that the proceedings with respect to Mexico and 
Canada should be conducted together rather than separately. Furthermore, as discussed below in section 2.2, Mexico and Canada requested third-party status in order to be able to fully participate 
in each other's arbitration; the United States, while raising systemic concerns in respect of third-
party rights in Article 22.6 arbitration proceedings, stated its support for full participation of Canada and Mexico in each other's arbitration.  
1.11.  Additionally, the United States and Cana da requested that the substantive meeting be 
conducted as an open hearing, by which public viewing of the hearing would be permitted. Mexico raised no objection to holding an open hearing.  
1.12.  Finally, the United States and Canada requ ested that working procedures be adopted for the 
protection of Business Confidential Information (B CI), and Mexico agreed to the inclusion of BCI 
working procedures. 
1.13.  Taking these considerations into account, and in order to accommodate the interconnected 
nature of the respective disputes, the Arbitrator : (a) adopted a harmonized timetable; (b) decided 
to hold a joint substantive meeting with the partie s; (c) granted Mexico and Canada certain rights 
to participate in each other's proceedings, as further discussed below in section 2.2; and (d) 
decided to include the two decisions in one single document with the final sections containing the 
Conclusion and Decision being printed on separate pages with the appropriate document symbol relevant for each dispute. Furthermore, the Arbitrator granted the parties' request for an open hearing as well as the request to protect BCI. The Arbitrator accordingly adopted Working 
Procedures of the Arbitrator, BCI Working Procedures, Procedures for an Open Substantive 
                                               
12 WT/DS386/34. 
13 WT/DS386/34.  
14 WT/DS386/34/Corr.1. 
15 WT/DS386/35. 
16 WT/DS384/36. 
17 WT/DS384/37.  
18 WT/DS386/37. 
19 WT/DS386/37. See also section 2.1 below. WT/DS384/ARB ● WT/DS386/ARB 
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  Meeting of the Arbitrator, and the finalized timetable, and communicated those documents to the 
parties on 6 July 2015.  
1.14.  In accordance with the timetable and Work ing Procedures adopted by the Arbitrator, on 10 
July 2015, Canada and Mexico presented communications concerning the methodology for 
calculating the proposed level of suspension (methodology papers). Due to a corrigendum 
submitted by Canada one working day later in conn ection with its methodology paper, the United 
States was granted one additional working day to file its written submission in DS384. The United 
States provided its written submissions on 29 July  and 30 July 2015, with regard to Mexico's and 
Canada's methodology papers respectively. Canada and Mexico provided written submissions to the Arbitrator on 12 August 2015. The Arbitrator sent written questions to the parties on 21 August 2015, to which the parties provided written responses on 1 September 2015. The 
Arbitrator held its substantive meeting with th e parties on 15 and 16 September 2015. The parties 
provided written responses to an additional set of questions from the Arbitrator on 1 October 
2015, and submitted comments on each other's responses to those questions on 8 October 2015.  
1.15.  This Decision is structured as follows: we first address two procedural issues in section 2. 
We then turn to the substance of the proceedings  and start by providing a brief overview of the 
parties' main arguments in section 3. Following this, we set out a number of preliminary issues in 
section 4 before undertaking the assessment of the proposed levels of suspension in section 5. 
Section 6 sets out our own determination of the level of nullification or impairment. Our conclusion and decision on the level of suspension of concessions or other obligations is contained in section 7.      
2  PROCEDURAL ISSUES  
2.1  Whether the objection to Mexico's requ est was properly referred to arbitration 
2.1.  As noted above, on 4 June 2015, Mexico filed a request for authorization to suspend 
concessions or other obligations under Article 22.2 of the DSU.
20 In that request, Mexico sought 
authorization to suspend concessions and other related obligations in the goods sector under the GATT 1994 in an annual amount of USD 653.5 million.
21 It also requested that a special meeting of 
the DSB be held on 17 June 2015 to consider its request. On 12 June 2015, Mexico submitted a 
corrigendum, circulated on 15 June 2015, correcting the amount to USD 713 million annually.22  
2.2.  At the outset of the DSB meeting held on 17 June 2015, prior to the adoption of the agenda, 
Mexico asked that the item related to its request under Article 22.2 be removed from the agenda 
of that meeting in light of the corrigendum it had filed on 12 June 2015 and in order that the 10-
day advance notice for circulation of documents be preserved.23 O n  1 7  J u n e  2 0 1 5 ,  M e x i c o  r e -
submitted the request for authorization to suspend concessions or other obligations in the amount 
of USD 713 million annually, requesting that a special meeting of the DSB be held on 29 June 
2015 to consider its request.24 On 22 June 2015, the United States notified to the DSB its 
objection to Mexico's proposed level of suspension and stated that "[a]ccordingly … the matter has 
been referred to arbitration".25 Thereafter, Mexico cancelled its request for a DSB meeting.26 On 26 
June 2015, the Secretariat circulated a note indicating that "the parties agree that the matter has been referred to arbitration under Article 22.6 of  the DSU", and noting the composition of the 
Arbitrator.
27  
2.3.  On 9 July 2015, the European Union communicated to the DSB its views regarding the 
communication from the United States circulated on 23 June 2015 "concerning certain recent procedural developments", and notably the reference in the United States' communication that 
Mexico's Article 22.2 request to the DSB "has been referred to arbitration, even though the DSB 
                                               
20 WT/DS386/34. 
21 WT/DS386/34. 
22 WT/DS386/34/Corr.1 
23 WT/DSB/M/363.  
24 WT/DS386/35. 
25 WT/DS386/36.  
26 Letter of 22 June 2015 from Mexico to the Chairperson of the DSB. 
27 WT/DS386/37. WT/DS384/ARB ● WT/DS386/ARB 
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  meeting originally scheduled to make the referral on 29 June 2015 was cancelled".28 In that 
communication, and subsequently in the DSB meet ing on 20 July 2015, the European Union stated 
that it "does not agree that an Article 22.6 DSU request to the DSB may be referred to arbitration other than by the DSB." 
2.4.  According to the European Union, the phrase "shall be referred" in Article 22.6 means that 
"there is an actor that does the referring and that actor is the DSB".
29 In other words, it is the DSB 
that refers the matter to arbitration and the matter is not referred automatically when a notice of 
objection to a proposed level of suspension is filed.  
2.5.  The European Union considered that the use of similar language in other provisions in the 
DSU, such as "shall be established" in Article 6 and "shall be adopted" in Articles 16.4 and 17.4, support its position, because in those cases the DSB is the actor that carries out those functions. 
The European Union also drew attention to the multiple references to the DSB in Article 22.6 
(including that it is the DSB that grants author ization to suspend concessions). For the European 
Union, "this context strongly supports the view that it is also the DSB that refers the matter to 
arbitration."
30 Finally, the European Union raised a number of  "good reasons" for its view that the 
DSB must refer matters to arbitration, arguing that this view ensures that: (1) authority for binding dispute settlement "flows from the Members acting together, through the DSB"; (2) 
Members are informed in a timely manner of the scope and nature of the arbitration; (3) Members 
have an opportunity to express their views on the arbitration; and (4) Members have an opportunity to consider whether to seek to participate in the proceedings.
31 
2.6.  The European Union is not a party to these proceedings, and no party to the arbitration has 
raised any objection in respect of the referral of th is matter to arbitration. Indeed, as noted above, 
the parties agree that the matter has been referred to arbitration. Nevertheless, there are instances in which an adjudicator remains under a duty to investigate issues that are not raised by 
parties to the dispute, particularly regarding issues  of a fundamental nature related to its authority 
to preside over the proceedings. The Appellate Body explained in Mexico – Corn Syrup 
(Article 21.5) that:  
[A] panel comes under a duty to address issues  in at least two instances.  First, as a 
matter of due process, and the proper exerci se of the judicial function, panels are 
required to address issues that are put before them by the parties to a dispute. Second, panels have to address and dispose of certain issues of a fundamental nature, 
even if the parties to the dispute remain silent on those issues. In this regard, we 
have previously observed that '[t]he vesting of jurisdiction in a panel is a fundamental prerequisite for lawful panel proceedings.'  For this reason, panels cannot simply 
ignore issues which go to the root of their jurisdiction – that is, to their authority to 
deal with and dispose of matters.  Rather, panels must deal with such issues – if necessary, on their own motion – in order to satisfy themselves that they have 
authority to proceed.
32  
2.7.  Thus, there is a legal duty on panels to  seize themselves of questions that are of a 
"fundamental nature", including the vesting of jurisdic tion. We believe that this duty also applies to 
arbitrators. We recall in this context that in US – Section 110(5) Copyright Act (Article 25),  the 
arbitrator considered that the principle by which an international tribunal is entitled to consider its 
own jurisdiction applies equally to arbitration bodi es as it does to panels, and thus proceeded to 
examine on its own motion the question whether it had "the necessary jurisdiction".33   
2.8.  On 15 July 2015, the Arbitrator communicated to the parties – namely Mexico and the United 
States – that it was considering whether any issues of a fundamental nature were present, particularly those that may go to the root of th e Arbitrator's jurisdiction, in the context of the 
                                               
28 WT/DS386/38.  
29 WT/DS386/38. 
30 WT/DS386/38. (emphasis in original)  
31 WT/DS386/38 and WT/DSB/M/365, Item 6, para. 6.2.  
32 Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 36 (quoting Appellate Body 
Report, United States – 1916 Act , para. 54). 
33 Award of the Arbitrators, US – Section 110(5) Copyright Act (Article 25) , para. 2.1. WT/DS384/ARB ● WT/DS386/ARB 
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  arbitration in DS386. The Arbitrator invited the parties to that dispute to provide their views on the 
issue.34  
2.9.  In response to the Arbitrator's invitation, Mexico and the United States submitted a joint 
communication on behalf of both parties to the dispute.35 In the joint communication, Mexico and 
the United States stated that they did not see any fundamental issues that would require the 
Arbitrator to take action, and emphasized that both Mexico and the United States agreed that "the matter at issue was referred to arbitration by virtue of the filing by the United States of its 
objection to Mexico's request."
36 Mexico and the United States noted that Members were fully 
informed about the arbitration through the request for authorization to suspend concessions37, the 
United States' objection to that request38, and the notification of the constitution of the 
Arbitrator.39 Mexico and the United States raised various considerations regarding the 
interpretation of Article 22.6, including: previous occasions in which matters had been referred to 
arbitration under Article 22.6 without any DSB action40; the text of Article 22.641; the text of 
Articles 6.1, 16.4, 17.14, and 22.7 of the DSU, which refer to "shall be"42; the applicable positive 
and negative decision-making rules under the DSU43; the authority and functions of the DSB44; 
procedures and provisions with respect to other arbitrations provided for under the DSU45; and 
procedural and timing implications.46  
2.10.  Turning to our assessment of the issue, we begin with the text of Article 22.6, which states 
in relevant part: 
When the situation described in paragraph 2 occurs, the DSB, upon request, shall 
grant authorization to suspend concessions or other obligations within 30 days of the 
expiry of the reasonable period of time unless the DSB decides by consensus to reject 
the request. However, if the Member concerned objects to the level of suspension proposed … the matter shall be referred to arbitration. 
2.11.  The question whether the DSB must take specific action when an objection to a proposed 
level of suspension is notified in order to effect a referral to arbitration, or whether the objection itself has this effect, is a contentious issue among Members.
47 We note that Article 22.6 provides 
in mandatory language that the matter "shall be referred" if the Member concerned objects to the 
level of suspension proposed. However, in using passive language without identification of the actor, Article 22.6 does not provide clear guidance on how this occurs. As noted by the parties and the European Union, similar passive language for actions that "shall be" carried out is used 
throughout the DSU, and the actor to whom such language refers differs based on the terms and 
context of the provision in question. For instance, the provision in Article 6 of the DSU that panels 
"shall be established" explicitly provides for this to be done at a DSB meeting, further stipulating 
that the DSB may decide by consensus not to establish a panel. No such explicit language is 
evident in the second sentence of Article 22.6 with respect to the referral of arbitration.  
                                               
34 In accordance with paragraph 5 of the Working Procedures adopted by th e Arbitrator, Canada was 
copied on this communication. Canada submitted it s own unsolicited comments on 31 July 2015. We note, 
however, that Canada's participatory rights under Para graph 5 of the Working Procedures do not allow it to 
comment on issues not pertaining to its own case.   
35 Communication from Mexico and the United States to the Arbitrator, 31 July 2015.  
36 Communication from Mexico and the United States to the Arbitrator, 31 July 2015.  
37 WT/DS386/35.  
38 WT/DS386/36. 
39 WT/DS386/37.  
40 Communication from Mexico and the United States to the Arbitrator, 31 July 2015, Annex - Joint 
Communication Regarding the Proper Interpretation of Article 22.6 of the DSU Regarding the Referral of a 
Request to Arbitration, para. 2.  
41 Ibid. paras. 3-4, 7-9, and 19.  
42 Ibid. paras. 12-16. 
43 Ibid. paras. 5-6 and 9.  
44 Ibid. paras. 17-18.  
45 Ibid. para. 18.  
46 Ibid. paras. 19-20.  
47 In this connection, we note the divergent opinions of the Members on this issue raised at the DSB 
meeting of 20 July 2015. WT/DSB/M/365, Item 6 of the Agenda, paras. 6.1-6.21. This issue has not arisen in prior arbitration proceedings.  WT/DS384/ARB ● WT/DS386/ARB 
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  2.12.  Although the terms of Article 22.6 do not prescribe the manner of referral, there are 
contextual indications within the DSU suggesting that referral to arbitration need not be performed 
by the DSB. For example, a number of provisions of the DSU explicitly provide for arbitration proceedings in contrast to panel proceedings. "Arbitration" is contemplated under Article 21.3(c), 
Article 25, and Article 22.6. In arbitrations under Ar ticle 21.3(c) and Article 25, there is no explicit 
requirement of any action by the DSB to initiate the arbitration. Rather, Article 21.3(c) provides 
that the reasonable period of time for compliance "shall be … a period of time determined through 
binding arbitration", without further specification of the procedure or forum through which such 
arbitration is initiated. With respect to arbitrat ion under Article 25, the DSU provides that "resort 
to arbitration shall be subject to mutual agreem ent of the parties" and that "[a]greements to 
resort to arbitration shall be notified to all Members sufficiently in advance of the actual 
commencement of the arbitration process", without explicit requirement of any action on the part 
of the DSB. Thus, these arbitration procedures under the DSU can be contrasted with the explicit requirements for the establishment of a panel described in Article 6, namely the initial request(s) 
by a Member and the subsequent establishment of a panel at a DSB meeting.  
2.13.  The difference in explicit procedural requirements, as well as the difference in designation 
between "arbitration" and "panel", is consistent with Article 2 of the DSU, which sets out the 
functions and authority of the DSB. In particular, although the DSB has "the authority to establish 
panels", Article 2 makes no specific reference to the role of the DSB in relation to arbitrations. Further, it does not necessarily follow from its authority "to administer these rules and procedures" 
or other general functions that the DSB must carry out the specific act of referral to arbitration 
under Article 22.6, or under Articles 21.3(c) and 25.  
2.14.  Further, we find it difficult to equate the arbitration referral procedure under Article 22.6 
with that of panel establishment under Article 6 in light of the decision-making rule in Article 2.4, 
which states that "[w]here the rules and procedures of this Understanding provide for the DSB to 
take a decision, it shall do so by consensus." The establishment of panels authorized under Article 2.1 is based on negative consensus, as stipulated in Article 6.1. Similarly, adoption of panel and 
Appellate Body reports under Articles 16.4 and 17.14, respectively, is achieved through negative 
consensus decisions by the DSB, as is the auth orization of suspension of concessions under 
Articles 22.6 and 22.7. Interpreting Article 22.6 to include a requirement of referral by the DSB implicates the decision-making rule that would apply to such action
48, yet there is no explicit 
reference to such a decision in the text of Article 22.6.49  
2.15.  We note that the initiation of dispute settlement proceedings without DSB action is 
envisaged in other contexts in the DSU, most notably for appeal procedures, which are triggered 
by notification of an appeal to the DSB pursuant  to Article 16.4. In such circumstances, the DSB 
does not take any action to refer the matter to the Appellate Body, or indeed any action whatsoever in respect of the appeal, until the adoption of the reports. Other procedures in the 
dispute settlement process may also occur without DSB involvement, such as the suspension of 
                                               
48 In this connection, we note that the applicable deci sion-making rule of a partic ular DSB action may, in 
accordance with Article 1.2 of the DS U, derive from "special or addition al rules and procedures on dispute 
settlement contained in the covered agreements as are identified in Appendix 2 to this Understanding". This includes the procedures in Annex V of the SCM Agre ement for obtaining inform ation concerning serious 
prejudice, which "the DSB shall, upon request, initiate" in accordance with  paragraph 2 thereof. The initiation 
of these procedures was noted by the Appellate Body to be "a procedural incident of the DSB's decision to 
establish a panel when the initiation of an Annex V procedure has been requested", and further "that such action occurs automatically when there is a request fo r an initiation of an Annex V procedure and the DSB 
establishes a panel".
 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 511 and 524. 
Importantly, the initiation of such Annex V procedures is partially contingent upon panel establishment by negative consensus of the DSB as explicitly required und er Article 7.4 of the SCM Agreement. Further, as noted 
by the Appellate Body of the Annex 5 procedures, "to the extent that there is a conflict [with the DSU], those 
provisions of the SCM Agreement identifi ed in Appendix 2 to the DSU prevail, including over Article 2.4 of the 
DSU". Ibid. para. 509. (emphasis added)  
49 For example, the European Unio n states in its communication to the DSB that "it is also the DSB  that 
refers the matter to arbitration, unless the DSB decides by consensus not to do so". WT/DS386/38. (emphasis 
original) Mexico and the United States consider that "Article 22.6 does not provide for a departure from the 
positive consensus requirement under Article 2.4"; this "would permit any Member to block the decision, which would defeat the referral to arbitration contemplated by the DSU and would leave unclear the status of the 
request for arbitration". Communication from Mexico and the United States to the Arbitrator, 31 July 2015, 
Annex - Joint Communication Regarding the Proper Inte rpretation of Article 22.6 of the DSU Regarding the 
Referral of a Request to Arbitration, para. 9. WT/DS384/ARB ● WT/DS386/ARB 
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  panel proceedings and automatic lapse of the panel's authority under Article 12.12, which is 
triggered by the request of the complaining party. Based on such considerations, we are not 
persuaded that the initiation of every dispute settlement proceeding under the DSU, including arbitrations, must require action on the part of the DSB.  
2.16.  At the same time, our approach does not di minish the exclusive role of the DSB in receiving 
and authorizing requests for suspension of conce ssions under Article 22, which applies irrespective 
of whether there is arbitration under Article 22.6. We also observe that, neither the parties nor any 
other Member, including the European Union
50, have asserted any prejudice to its interests or 
rights under the DSU as a result of the manner of referral to this arbitration.  
2.17.  As indicated above, the text of Article 22.6 does not explicitly require referral to arbitration 
by the DSB. Furthermore, the context found in othe r provisions of the DSU, particularly regarding 
other arbitration procedures, suspension and lapsin g of panels, and initiation of appeals, suggests 
that it is not necessary for the DSB to have an active role in all dispute settlement procedures for them to occur. While agreeing that a resolution of this issue by Members would be desirable, the 
Arbitrator sees no reason in the present case to read such a formal requirement into Article 22.6. 
2.18.  Therefore, the Arbitrator concludes that the procedural absence of formal DSB action in this 
case does not call into question the vesting of jurisdiction or the capacity of the Arbitrator to 
proceed. Hence, there was no reason in the pr esent circumstances to suspend or terminate the 
proceedings on the basis of the manner of referral to arbitration.  
2.2  Third-Party Rights 2.19.  At the organizational meeting on 3 July 2015, Canada and Mexico requested to be third 
parties in their respective proceedings. Canada and Mexico clarified that they were seeking to have 
the right to be present at the entirety of the hear ing and to have access to all written submissions. 
When asked specifically whether Canada was seeking a right to comment on issues not pertaining 
to its own case, Canada stated that it envisaged a right to comment where "issues of comparison" 
would arise.
51 The United States raised systemic concerns in respect of third-party rights, taking 
the view that such rights were not provided for in arbitration proceedings. However, the United 
States supported "full participation" of Canada and Mexico in each other's case.52 
2.20.  As noted in previous arbitrations under Article 22.6 of the DSU, arbitrators, like panels, 
h a v e  " a  m a r g i n  o f  d i s c r e t i o n  t o  d e a l ,  a l w a y s  i n  a c c o r d a n c e  w i t h  d u e  p r o c e s s ,  w i t h  s p e c i f i c  situations that may arise in a particular case and that are not expressly regulated."
53 The DSU 
does not contain a specific provision on third-party rights in Article 22.6 arbitration proceedings, 
nor does it deny any such rights. Noting the abse nce of any such provision, previous arbitrators 
have denied requests for third-party status on the grounds that the party making the request 
could not show that its rights would be adversely affected through their inability to participate in 
the proceedings.54 However, arbitrators have authorized participation by Members not directly 
involved in the arbitration in certain situations. We note that in the two parallel arbitration 
proceedings in the EC – Hormones  dispute, participation rights were granted because it was 
considered that the rights of the requesting Members "may be affected in both arbitration 
                                               
50 See WT/DS386/38, last paragraph:  "The European Union does not in tend at this time to intervene 
further in these particular proceedings." 
51 Statement made by Canada at the organizational meeting of 3 July 2015. 
52 Statement made by the United States at the organizational meeting of 3 July 2015. 
53 Decisions by the Arbitrators, EC – Hormones (Canada) (Article 22.6 – EC) , para. 7; EC – Hormones 
(US) (Article 22.6 – EC) , para. 7; US – Gambling (Article 22.6 – US) , para. 2.31. 
54 Decisions by the Arbitrators, EC – Bananas III (US) (Article 22.6 – EC) , para. 2.8 ("However, in light 
of the absence of provisions for thir d-party status under Article 22 of the DSU and given that we do not believe 
that Ecuador's rights will be affected by this proceedin g, we declined Ecuador's requ est.  In this regard, we 
note that our Initial and Final Decisions in this arbitration fully respect Ecuador's rights under the DSU, and, in particular, Article 22 thereof."); Brazil – Aircraft (Article 22.6 – Brazil) , para. 2.5 ("Our decision took into 
account the views expressed by the parties, the fact th at there is no provision in the DSU as regards third 
party status under Article 22, and the fa ct that we do not believe that Aust ralia's rights would be affected by 
this proceeding."); US – Gambling (Article 22.6 – US) , para. 2.31 ("The Arbitrator sees no basis for assuming 
that its determination under Article 22.7 of the DSU in respect of Antigua and Barbuda's request to suspend concessions and other obligations would be such  as to adversely affe ct the EC's rights"). WT/DS384/ARB ● WT/DS386/ARB 
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  proceedings".55 In particular, it was noted that the product scope and relevant trade barriers were 
the same in both proceedings and that both arbi trators (composed of the same three individuals) 
might adopt the same or very similar methodologies.56 On these grounds, combined with the 
absence of any prejudice to the interests or du e process rights of the respondent, the Members 
requesting suspension of concessions in the parallel cases were allowed "to attend both arbitration 
hearings, to make a statement at the end of each hearing and to receive a copy of the written submissions made in both proceedings."
57        
2.21.  In considering the requests of Canada and Mexico, we have taken into account the 
discretion of the Arbitrator to address procedural issues that are not specifically regulated in the 
DSU. Moreover, we consider the present circumst ances to be similar to those present in the EC – 
Hormones  arbitrations in respect of: similar products and relevant trade barriers being at issue; 
the potential need to adopt the same or simila r methodologies in each proceeding; and, as 
confirmed by its agreement to participatory rights at the organizational meeting, the absence of any prejudice to the interests or due process rights of the United States. In particular, in view of 
the potential implications of adopting different methodologies, we cannot exclude the possibility 
that the rights of Canada and Mexico would be adversely affected through their inability to make a statement and submissions, and answer qu estions, in each other’s proceedings. 
2.22.  In light of the foregoing, and based on the views of the parties expressed at the 
organizational meeting, the Arbitrator inserted the following paragraph in the respective Working Procedures of DS384 and DS386: 
For the purposes of joining these proceedings with those in the parallel dispute 
[DS384][DS386], [Canada][Mexico] will be included in all communications of the 
Arbitrator and of the parties, including their submissions. [Canada][Mexico] will also be allowed to be present throughout the joint substantive meeting in DS384 and 
DS386.  
2.23.  We have granted the above rights on the basis of our margin of discretion as described 
above. We note that these rights are not the sa me as those accorded to third parties in panel 
proceedings pursuant to Article 10 of the DSU. In particular, third parties in panel proceedings 
may make submissions in another party's case, including on issues not pertaining to its own case. Further, Canada and Mexico have been granted full access to all submissions and communications in each other's arbitration, including those made after the meeting with the Arbitrator. 
2.24.  We consider that this affords Canada and Mexico the access and participatory rights 
requested, including the opportunity to comment on "issues of comparison" for purposes of each respective arbitration. Thus, Canada and Mexico have been allowed to fully participate in each 
other's proceeding to the extent necessary under the circumstances of these parallel arbitration 
proceedings. 
3  MAIN ARGUMENTS OF THE PARTIES 
3.1.  The parties have summarized their arguments in their executive summaries provided to the 
Arbitrator.
58 In this section, we briefly set out the main elements of the parties' submissions made 
in these proceedings. We discuss in greater detail th e parties' individual arguments in our analysis 
in sections 5 and 6 below.    
                                               
55 Decisions by the Arbitrators, EC – Hormones (Canada) (Article 22.6 – EC) , para. 7 ; EC – Hormones 
(US) (Article 22.6 – EC) , para. 7. 
56 The arbitrators added that "[t]his is all the more necessary because the arbitrators are called upon to 
arrive at a specific determination on the amount of nullification and impairment caused by the ban. They are therefore not limited, as in most panel proceedings, to ruling only on the consistenc y of the amounts proposed 
by the US and Canada with DSU prov isions.  Due process thus requires that all three parties receive the 
opportunity to comment on the methodologies proposed by  each of the parties." Decisions by the Arbitrators, 
EC – Hormones (Canada) (Article 22.6 – EC) , para. 7 ; EC – Hormones (US) (Article 22.6 – EC) , para. 7. 
57 Decisions by the Arbitrators, EC – Hormones (Canada) (Article 22.6 – EC) , para. 7 ; EC – Hormones 
(US) (Article 22.6 – EC) , para. 7. 
58 See executive summaries of the parties' arguments, Annex B. WT/DS384/ARB ● WT/DS386/ARB 
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  3.1  Overview of the nullification or impa irment claimed by Canada and Mexico  
3.2.  Canada and Mexico both claim nullification or impairment suffered as a result of the COOL 
measure59 in respect of two types of losses, namely  (a) export revenue losses and (b) revenue 
losses from domestic price suppression. Both describe export revenue losses as a combination of 
suppressed prices and reduced quantities of livestock exported to the United States.60 In respect of 
losses suffered from domestic price suppression, both Canada and Mexico submit that due to "arbitrage" conditions in the North American livestock market, reduced export prices lead to 
suppression of domestic prices in their respective markets.
61      
3.3.  Canada claims losses in respect of four differe nt categories of livestock, namely feeder cattle, 
fed cattle, feeder pigs, and fed hogs.62  Canada describes the level of its export revenue losses as 
totalling CAD 2,045 million63 and its losses from domestic price suppression as totalling CAD 
1,023.1 million.64  
3.4.  Mexico claims losses in respect of only one category of livestock, namely feeder cattle.65   
Mexico submits USD 514.8 million in export revenue losses and USD 198.6 million in losses from 
domestic price suppression.66 
3.5.  The respective methodologies used by Canada and Mexico to calculate the level of 
nullification or impairment overlap to a considerable extent. In particular, both use the same basic 
framework, namely a comparison between actual  revenues obtained in a given baseline year after 
                                               
59 Canada and Mexico request authorization to susp end concessions or other obligations based on the 
nullification or impairment of benefi ts caused by the original and amended COOL measures, reviewed in the 
original and compliance stages of these disputes, respec tively. In this Decision, we refer to the original and 
amended COOL measures separately where the distinction is relevant, and more generally to "the COOL 
measure" when referring to combin ed aspects or effects of the orig inal and amended COOL measures. 
60 Canada's methodology paper, Su mner Study, para. 2; Mexico's methodology paper, paras. 18-23. 
Canada and Mexico both submitted two documents consisti ng of an introductory docu ment (referenced in this 
Decision as "Canada's methodology pa per" and "Mexico's methodology pape r", respectively) and attached to 
that introductory document a comprehensive methodolog y paper (referenced in this Decision as "Canada's 
methodology paper, Sumner Study" and "Mexico's meth odology paper, Pouliot St udy", respectively).   
61 Canada's response to Arbitrator question No. 22,  para. 64 (stating that "[t]he arbitrage mechanism 
means simply that producers and shippers would adjust qu antities exported to eliminate any price discrepancy" 
between livestock prices in Canada and the United Stat es); Mexico's methodology pa per, Pouliot Study, p. 5 
(describing "arbitrage by Mexican feeder cattle producer s [causing] the price of feeder cattle in Mexico to 
adjust until the return on selling feeder cattle in the US ex port market equals that on selling of feeder cattle in 
the Mexican domestic market").  See also section 5.2.1.1 below regarding arbitrage conditions under which price differences between locations are equalized in an integrated market. 
62 Canada's methodology paper,  Sumner Study, para. 4:  
Canadian feeder cattle are young steers and heifers of between about 300 and 950 pounds, that are typically marketed domestically or exported to the United States to be intensively fed grain in 
preparation for slaughter. Fed cattle are steers  and heifers marketed for immediate slaughter 
and typically weigh between 1250 and 1450 pounds after intensive feeding, and are typically less than 24 months of age. Canadian feeder pigs are young barrows and gilt s, typically marketed 
domestically or exported to the United States at weights between 12 pounds and 100 pounds to be intensively fed grain in prepar ation for slaughter. Fed hogs are barrows and gilts marketed for 
immediate slaughter, typically at weights of between 250 and 320 pounds after undergoing intensive feeding. These categories correspond to those used in data sources in both the United 
States and Canada. (footnote omitted) 
63 The breakdown of claimed losses per category of livestock is as follows: CAD 760.9 million for fed 
cattle; CAD 508 million for feeder cattle; CAD 479.3 million for fed hogs; and CAD 296.8 million for feeder pigs. See Canada's methodology paper, Sumner Study, para. 144.  
64 The breakdown of claimed losses per category of livestock is as follows: CAD 95.1 million for fed 
cattle; CAD 233.1 million for feeder cattle; CAD 369.5 million for fed hogs; CAD 325.4 million for feeder pigs. See Canada's methodology paper, Sumner Study, para. 144.   
65 Mexico assesses the impact of the COOL measure on two weight categories of feeder cattle, namely a 
350lb weight category (based on feeder steers weighing between 300 and 350lb and between 350 and 400lb) and a second weight category of 550lb (for feeder steers weighing between 500 and 550lb and between 550 and 600lb). Mexico's methodology paper, Pouliot Study, p. 9. We recall the original panel's explanation that "Mexico generally exports feeder cattle  immediately after the cow/calf stag e to US backgrounding and feeding 
operations, because of a lack  of sufficient grasslands in Mexico and the general lack of well-developed feed 
grains and cattle-feedlot sectors." Panel Reports, US – COOL , para. 7.141. (footnotes omitted) (emphasis 
original)   
66 Mexico's methodology paper,  Pouliot Study, pp. 24-25.  WT/DS384/ARB ● WT/DS386/ARB 
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  the expiry of the reasonable period of time (RPT), and estimated revenues that would have been 
obtained in that year absent the COOL measure.67 The methodologies of both Canada and Mexico 
use a one-year reference period following the expiration of the RPT pursuant to Articles 21.3 and 22.2 of the DSU.
68  
3.6.  In respect of the price estimation, Canada and Mexico follow the same general approach of 
econometrically estimating the COOL impact by means of regression analysis. In that analysis, both Canada and Mexico estimate the impact of the COOL measure not on the actual export price 
of livestock, but on the price basis, namely the difference or gap between the US price and their 
own export price (which is defined differently by Canada and Mexico).
69 However, in respect of 
feeder pigs, Canada does not use regression analysis to estimate the price, but relies instead on a descriptive comparative analysis of prices based on invoices provided by a large Canadian firm 
trading both in the US domestic and the Canadian export market.
70   
3.7.   In respect of the estimation of quantity impacts, Canada's and Mexico's approaches differ. 
Canada estimates export quantities in the same way as price, namely through econometric 
estimation. Mexico employs an elasticity-based simulation using the estimated price impact and a 
derived elasticity figure to arrive at the impact on export quantities.71  
3.8.  To calculate domestic price suppression losse s, Canada and Mexico multiply the quantity of 
livestock in their respective domestic markets (sub tracting the quantity exported in order to avoid 
double-counting) by the above counterfactual export price. Canada assumes full (one to one) transmission of export price effects to the domestic price. Mexico applies a transmission coefficient of 0.678 to account for factors that mitigate full transmission.
72      
3.9.  Canada's and Mexico's explanations of th eir methodologies, as well as details on their 
respective specifications and data used, are discussed in section 5 below.   
3.2  The relevant counterfactual  
3.10.  As noted above, Canada and Mexico compare actual  revenues obtained in a given baseline 
year after the expiry of the RPT, and estimated revenues that would have been obtained in that 
year absent the COOL measure. Both Canada and Mexico base this comparison on the assumption 
that the United States would have come into compliance with the recommendations and rulings of 
the DSB by withdrawing the COOL measure.  
3.11.  While the United States points out that there could be other options for compliance, it 
accepts, for the purposes of this arbitration, the counterfactual in which the COOL measure has 
been withdrawn.73 In its own alternative methodology, the United States applies this 
                                               
67 Canada's methodology paper, Su mner Study, para. 6; Mexico's methodology paper, para. 13.  
68 The parties use slightly different base-perio ds, 23 November 2013 to 23 November 2014 for Canada, 
and the calendar year of 2014 for Mexico.  Canada's methodology paper, Sumner Study, para. 9; Mexico's 
methodology paper, para. 12.  
69 Specifically, Canada compares the price of Canadian  and US-origin livestock in  two different countries 
(i.e. Canada and the United States), while Mexico compares the prices of Mexican and US-origin livestock in the same country (i.e. the United States). See section 5.2.1.1 below. 
70 See section 5.2.1.3 below. 
71 As discussed in section 5.2.2.2 below, the elasticity value measures the responsiveness of quantity 
impacts to a change in price. The change in quanti ty is "simulated" based on the responsiveness to the 
estimated change in price attributed to the COOL measure. 
72 Canada's methodology paper, Su mner Study, paras. 31-35; Mexic o's methodology paper, Pouliot 
Study, p. 8. 
73 United States' written submission, para. 22. The United States submitted two separate written 
submissions – the written submission in respect of the proceeding against Canada in DS384 (hereinafter United States' written submission (Canada)) an d the written submission in respect of the proceeding against Mexico in 
DS386 (hereinafter United States' written submission (Mexico)). For reference purposes, a citation to a paragraph or footnote that is identically numbered in both written submissions will refer only to a single 
paragraph or footnote number, and cite simply to the "United States' written submission". Where the reference 
is to a paragraph or footnote number that differs in the respective submissions, the written submissions are 
distinguished as indicated above. WT/DS384/ARB ● WT/DS386/ARB 
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  counterfactual to assess, within the baseline period of 2014, "the effect of removing any incentives 
or 'discounts' resulting from the amended COOL measure".74  
3.12.  Thus, the parties are generally in agreement that the relevant counterfactual for the 
purposes of this arbitration is the situation that would exist in the baseline period in the absence of 
the COOL measure. The parties differ, however, in their approach to assessing the impact of the 
COOL measure.  
3.3   The United States' three-pronged challenge against the levels of suspension 
proposed by Canada and Mexico 
3.13.  The United States challenges the proposed levels of suspension in three separate ways, 
arguing that "[a]ny one of these ways is sufficien t to meet the U.S. burden and each one on their 
own establishes that Canada and Mexico's requests are inconsistent with the DSU."75 
3.14.  First, the United States directly challenges various aspects of the methodologies used by 
Canada and Mexico. The United States' main focus is on the use of econometric modelling, which it considers "inappropriate for the question at issue".
76 More specifically, the United States contests 
the use of price basis and argues that Canada's and Mexico's econometric estimations are 
formulated incorrectly and suffer from variable omission. The United States also challenges Canada's feeder pig price estimation as well as Mexico's quantity simulation. Finally, the United 
States raises a number of specific issues relating to the data used to estimate COOL impacts under 
the econometric approach.  
3.15.  Second, the United States also challenges the proposed level of suspension by submitting 
an alternative methodology. According to the Un ited States, this alternative methodology "is 
appropriate for the question presented and accura tely estimates the levels of nullification or 
impairment, as opposed to the econometric models proposed by the requesting parties."
77 The 
alternative methodology proposed by the United States is a partial equilibrium model, more 
specifically an "equilibrium displacement model" (EDM). Applying its EDM, the United States 
calculates that Canada's export revenue losses amount to USD 43.22 million and Mexico's losses amount to USD 47.55 million.
78   
3.16.  Third, the United States challenges, as a threshold matter of legal interpretation and for 
methodological reasons, the inclusion of domestic price suppression losses in the level of nullification or impairment of benefits.
79 
3.4  Canada's and Mexico's arguments on the EDM 
3.17.  Canada and Mexico contest the use of an alternative methodology as a means of setting out 
a prima facie  case against their own methodologies.80 Canada and Mexico also raise a number of 
arguments against the methodology itself. Canada's and Mexico's main criticism in this respect is 
that the EDM proposed by the United States does not reflect the segregation and differential 
compliance costs which underlie the findings of WTO-inconsistency in this dispute.81 Furthermore, 
                                               
74 United States' written submission, para. 22. 
75 United States' opening statement at the meeting of the Arbitrator, para. 10; see also United States' 
response to Arbitrator question No. 1, where the three prima facie  cases are presented in a different order. See 
section 4.2 below on burden of proof. 
76 United States' opening statement at the meeting of the Arbitrator, para. 10; see also United States' 
response to Arbitrator question No. 1, where this is described as the second prima facie  case.  
77 United States' opening statement at the meeting of the Arbitrator, para. 11; see also United States' 
response to Arbitrator question No. 1,  where this is described as the first prima facie  case. 
78 United States' written submission, para. 60. 
79 United States' opening statement at the meeting of the Arbitrator, para. 13; see also United States' 
response to Arbitrator question No. 1; United Stat es' responses to Arbitrator  question Nos. 22 and 50. 
80 Canada's response to Arbitrator question 1, para . 2; see also Canada's oral statement, para. 10; 
Mexico's written submission, para. 10; Mexico's response to Arbitr ator question No. 1, para. 4. 
81 Canada's written submission, paras. 67-73; Mexico's written submission, paras. 25-31 and 35-39. WT/DS384/ARB ● WT/DS386/ARB 
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  Canada and Mexico take issue with the elasticity values used by the United States.82 We describe 
how we address these arguments in section 4.3 below.    
4  PRELIMINARY ISSUES 4.1  Mandate of the Arbitrator 
4.1.  The United States objects to the levels of suspension indicated by Canada and Mexico in their 
requests to the DSB on the grounds that these levels are not equivalent to the nullification or impairment caused.
83 We begin by recalling our mandate as set out in Article 22.7 of the DSU, 
which states in relevant part:  
The arbitrator acting pursuant to paragraph 6 shall not examine the nature of the 
concessions or other obligations to be suspended but shall determine whether the 
level of such suspension is equivalent to the level of nullification or impairment .84    
4.2.  Thus, our task in these proceedings is to examine whether there is equivalence between the 
proposed level of suspension and the level of nullification or impairment.85 The nullification or 
impairment in question is, as the arbitrator in US – 1916 Act (Article 22.6 – EC) noted, that 
"sustained by the complaining party as a result of the failure of the responding party to bring its 
WTO-inconsistent measures into compliance".86   
4.3.  "Equivalence", as the arbitrator in EC – Bananas (US) (Article 22.6 – EC) observed, "connotes 
a correspondence, identity or balance between tw o related levels, i.e. between the level of the 
concessions to be suspended, on the one hand, and the level of the nullification or impairment, on the other".
87   
4.4.  The levels of suspension that Canada and Mexico propose correspond to the levels of 
nullification or impairment that each has identified in their respective methodology papers. Our 
task is to assess Canada's and Mexico's determinations of their respective levels of nullification or impairment. If we cannot accept Canada's and Mexico's determinations, our mandate requires us 
to make our own determination.
88 As the arbitrator in EC – Hormones (US) (Article 22.6 – EC) 
stated: 
There is … a difference between our task here and the task given to a panel. In the 
event we decide that the US proposal is not WTO consistent, i.e. that the suggested 
amount is too high, we should not end our examination the way panels do, namely by requesting the DSB to recommend that the measure be brought into conformity with WTO obligations. Following the approach of the arbitrators in the Bananas case … we 
would be called upon to go further. In pursuit of the basic DSU objectives of prompt 
and positive settlement of disputes we would have to estimate the level of suspension we consider to be equivalent to the impairment suffered. This is the essential task and 
responsibility conferred on the arbitrators in  order to settle the dispute. In our view, 
such approach is implicitly called for in Article 22.7.
89 
4.5.  We note that in making their own determination of the level of nullification or impairment, 
previous arbitrators developed their own appropriate methodologies90, which were either based on 
                                               
82 Canada's written submission, paras. 85-87; Mexico's written submission, paras. 32-34. 
83 This arbitration does not concern an y claim under Article 22.3 of the DSU. 
84 Emphasis added. 
85 The requirement of "equivalence" is set out in Article 22.4 of the DSU which provides: "The level of 
the suspension of concessions or other obligations authorized by the DSB shall be equivalent to the level of the 
nullification or impairment." 
86 Decision by the Arbitrators, US – 1916 Act (EC) (Article 22.6 – US) , para. 4.5. 
87 Decision by the Arbitrators, EC – Bananas III (US) (Article 22.6 – EC) , para. 4.1. 
88 Decision by the Arbitrators,  EC – Hormones (US) (Article 22.6 – EC) , para. 35. 
89 Decision by the Arbitrators,  EC – Hormones (US) (Article 22.6 – EC) , para. 12. (footnotes omitted) 
(emphasis original) 
90 See Decision by the Arbitrator,  US – Offset Act (Byrd Amendment)  (Mexico) (Article 22.6 – US),  para. 
3.13. WT/DS384/ARB ● WT/DS386/ARB 
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  elements of the methodologies initially proposed by the parties91 or which followed an altogether 
different approach.92 We observe that any determination of nullification or impairment, because it 
is based on assumptions, is necessarily a "reaso ned estimate" relying on "credible, factual, and 
verifiable information".93    
4.6.  Our decision will determine the level of nullification or impairment with which the level of 
suspension shall be equivalent. We note that this level of suspension will represent the upper limit 
of any suspension of concessions or other obligations that Canada or Mexico may apply. While our 
decision, in this manner, allows the DSB to ensure "equivalence" in any authorization it grants in 
accordance with Article 22.4 of the DSU, subsequently it will be  for the authorized Member to 
ensure that the suspension is applied in a manner that does not exceed the authorized level.94    
4.2  Burden of proof 
4.7.  We agree with previous arbitrators on the applicable standard on burden of proof, which has 
been summarized by the arbitrator in EC – Hormones  as follows: 
WTO Members, as sovereign entities, can be presumed  to act in conformity with their 
WTO obligations. A party claiming that a Member has acted inconsistently  with WTO 
rules bears the burden of proving that inconsistency.  The act at issue here is the US proposal to suspend concessions. The WTO rule in question is Article 22.4 prescribing 
that the level of suspension be equivalent to the level of nullification and impairment. 
The EC challenges the conformity of the US proposal with the said WTO rule. It is thus for the EC to prove that the US proposal is  inconsistent with Article 22.4. Following 
well-established WTO jurisprudence, this means that it is for the EC to submit 
arguments and evidence sufficient to establish a prima facie  case or presumption that 
the level of suspension proposed by the US is not equivalent to the level of 
nullification and impairment caused by the EC hormone ban. Once the EC has done so, 
however, it is for the US to submit arguments and evidence sufficient to rebut that 
presumption. Should all arguments and evidence remain in equipoise, the EC, as the party bearing the original burden of proof, would lose.
95   
4.8.  The same arbitrator also observed that "the same rules apply where the existence of a 
specific fact is alleged", noting that "[i]t is for the party alleging the fact to prove its existence."96  
4.9.  Finally, as has been emphasized in previous arbitrations, all parties have a duty to produce 
evidence and to collaborate in presenting evidence to the arbitrator.97 It is this duty that requires a 
requesting party to submit a methodology paper "explaining how it arrived at its proposal and 
showing why its proposal is equivalent to the trade impairment it has suffered".98    
4.10.  As seen above, one of the three ways in which the United States challenges the proposed 
level of suspension is by using a completely different alternative methodology, which it considers 
more appropriate and which results in a much lower level of nullification or impairment.99 We 
therefore see a need in this case to set out addi tional considerations on the legal standard of 
                                               
91 See Decision by the Arbitrator,  US – Gambling (Article 22.6 – US) , para. 3.174. 
92 Decision by the Arbitrator,  US – Offset Act (Byrd Amendmen t) (Mexico) (Article 22.6 – US),  paras. 
3.69- 3.79.  
93 Decision by the Arbitrators, US – 1916 Act (EC) (Article 22.6 – US) , para. 5.54; see also Decision by 
the Arbitrators,  EC – Hormones (US )(Article 22.6 – EC), para. 41. 
94 Decisions by the Arbitrators, EC – Hormones (US) (Article 22.6 – EC) , paras. 18-19; US – 1916 Act 
(EC) (Article 22.6 – US) , paras. 5.40-5.44 and 7.4; and EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 
159. 
95 Decision by the Arbitrators, EC – Hormones (US) (Article 22.6 – EC), para. 9 (emphasis original); see 
also Decisions by the Arbitrators, US – Gambling (Article 22.6 – US) , para. 2.22; Canada – Aircraft Credits and 
Guarantees (Article 22.6 – Canada) , paras. 2.5-2.8; US – FSC (Article 22.6 – US) , paras. 2.8-11; Brazil – 
Aircraft (Article 22.6 – Brazil) , para. 2.8; and EC – Bananas III (Ecuador) (Article 22.6 – EC) , paras. 37-41.  
96 Decision by the Arbitrators,  EC – Hormones (US) (Article 22.6 – EC), para. 9. 
97 Decisions by the Arbitrators, EC – Hormones (US) (Article 22.6 – EC), para. 11; US – 1916 Act (EC) 
(Article 22.6 – US) , para. 3.2; and US – Gambling (Article 22.6 – US) , paras. 2.24 and 2.25. 
98 Decision by the Arbitrators, EC – Hormones (US) (Article 22.6 – EC) , para. 11. (emphasis original) 
99 United States' written submission, para. 6 (stating that the EDM "more accurately estimates the trade 
effects of the COOL measure"). WT/DS384/ARB ● WT/DS386/ARB 
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  burden of proof, and in particular, to further expl ore the role of opposing methodologies submitted 
in Article 22.6 arbitration proceedings. In the United States' view, presenting a different calculation 
of the level of nullification or impairment is a prima facie  demonstration that the levels proposed 
by Canada and Mexico are inconsistent with the DSU. While alternative methodologies have been 
proposed and discussed in previous arbitrations, th is is the first time that an objecting party 
explicitly presents an alternative methodology on its own merits for purposes of satisfying its initial burden of proving that the level of nullification or impairment proposed is WTO-inconsistent.
100  
4.11.  The methodology papers submitted by Canada and Mexico respond to their duty, described 
above, to produce evidence and collaborate in pr esenting evidence to the arbitrator. Methodology 
papers are different from the actual request to suspend concessions or other obligations at a proposed level, which, as seen above, is the "act at issue" that is presumed to be in conformity 
with WTO obligations. However, the underlying methodologies are inextricably linked with the 
proposed level of suspension in that they substa ntiate and explain the grounds on which the act at 
issue is based. Because the proposed level of suspension rests on the underlying methodology, 
establishing that the proposed level of suspension is WTO-inconsistent necessarily involves 
showing that it does not follow from the underlying methodology, or that the methodology itself is flawed. This necessitates engagement by the objecting party with the methodology underlying the 
proposed level of suspension.  
4.12.  It may be possible to present an alternative methodology as a way of engaging with, and 
contributing to disproving, a proposed methodol ogy. However, merely putting forward, as was 
done here, a different methodology as "appropriate"
101 or as one that "more accurately 
estimates"102 the level of nullification or impairment is not sufficient. In the absence of a 
demonstration that the proposing party's methodology is incorrect, the mere submission of an alternative methodology would not meet the objecting party's burden of proof. This is because the 
alternative methodology does not, in itself, assist the Arbitrator in determining whether the result 
from the first methodology is (or is not) equivalent to the level of nullification or impairment. In such a situation, it would follow from the rules on  burden of proof that the objecting party has not 
proved that the act at issue is WTO-inconsistent.  
4.13.  The onus is therefore on the United States to show that the proposed level of suspension is 
inconsistent with the DSU by engaging with th e methodologies proposed by Canada and Mexico, 
and demonstrating that they do not lead to a result that is equivalent to the level of nullification or 
impairment.   
4.14.  In sum, we are of the view that, in order to meet its prima facie  burden, an objecting party 
under Article 22.6 of the DSU must engage with th e methodology used to arrive at the proposed 
level of suspension and that it is not sufficient merely to assert that another methodology is more 
appropriate. We therefore find that, in merely proposing an alternative methodology, the United 
States has not validly established a prima facie  case against the levels of suspension proposed by 
Canada and Mexico.   
4.3  Order of analysis 4.15.  In light of the above considerations on ou r mandate and the apportioning of the burden of 
proof, we proceed with our analysis in the following order. 
4.16.  We will first assess the methodologies proposed by Canada and Mexico in examining 
whether the United States has successfully established that the proposed levels of suspension are in excess of the level of nullification or impairment. This assessment will focus on determining 
                                               
100 For example, in US – Offset Act (Byrd Amendment) (Mexico) (Article 22.6 – US) , the objecting party 
proposed an economic model to estimate trade effects. Decision by the Arbitrators, US – Offset Act (Byrd 
Amendment) (Mexico) (Article 22.6 – US) , paras. 3.83-3.94. The objecting party's alternative model, however, 
only arose in response to questions by the arbitrator and was assessed in connection with the arbitrator's 
discussion of its own determination of the equivalent level of nullification or impairment. Ibid. paras. 3.82-3.83. Similarly, in US – Gambling (Article 22.6 – US), the objecting party proposed its alternative model once it 
had already addressed certain concerns  regarding the methodology used by the requesting party. Decision by 
the Arbitrator, US – Gambling (Article 22.6 – US) , para. 3.145.  
101 United States' opening statement at the meeting of the Arbitrator, para. 11. 
102 United States' response to Arbi trator question No. 1, para. 5. WT/DS384/ARB ● WT/DS386/ARB 
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  specific points of validity or error in the pr oposed methodologies based on the arguments and 
evidence submitted by the parties.  
4.17.  In assessing the Canadian and Mexican meth odologies, we will begin by considering which 
losses can be included in the nullification or impairment of benefits accruing to Canada and Mexico, 
and will then proceed to assessing the calculation of such losses. We observe that the United 
States, in its third line of argument described above, argues that losses from domestic price suppression cannot be included in the nullification or impairment considered under Article 22 of the 
DSU. As this involves a threshold question of a legal nature, we consider it appropriate, indeed 
necessary, to examine the permissible scope of relevant losses before turning to the actual calculations.  
4.18.  We will then examine the actual calculat ions of the losses as presented by Canada and 
Mexico under their proposed methodologies. We will assess these calculations in light of the 
criticisms submitted by the United States in its first line of argument described above. We note that many of the arguments discussed in this respec t turn on factual allegations that are contested 
between the parties, and we recall that each party bears the burden of substantiating its own 
factual allegations. While recognizing that our ma ndate under Article 22.6 of the DSU differs from 
that of panels, we will be guided by the principles of Article 11 of the DSU in objectively assessing 
the arguments made and evidence submitted by the parties.
103       
4.19.  We will examine all elements of Canada's and Mexico's methodologies in determining 
whether the proposed level of suspension is equivalent to the level of nullification of impairment. The reason is that, for the purposes of making our own determination, we will consider all 
elements of methodologies that are on the tabl e, retaining those elements of the proposed 
methodologies that we conclude are acceptable. Li kewise, we will consider the United States' EDM 
to assess its comparative merits and shortcomings, and to ascertain which elements if any of the 
EDM may assist us in deciding upon the approach to adopt for our reasoned estimate of the level 
of nullification or impairment. 
5  ASSESSMENT OF THE PROPOSED LEVEL OF SUSPENSION  
5.1  Inclusion of domestic price suppressi on losses in the level of nullification and 
impairment 
5.1.  In this section, we address the United States' challenge against the inclusion of domestic 
price suppression losses in Canada's and Mexico's determination of the level of nullification or 
impairment of benefits. We recall that Canada claims domestic price suppression losses in the 
amount of CAD 1,032.1 million. Mexico claims domestic price suppression losses in the amount of USD 198.6 million.
104  
5.1.1  Arguments of the parties 
5.2.  The United States objects to the inclusion of such losses on the grounds that there is "no 
basis under the DSU for considering domestic pr ice suppression as a part of the level of 
nullification or impairment of benefits  under the TBT Agreement or the GATT 1994".105 The United 
States asserts that the level of nullification or  impairment flows from the benefits under the 
covered agreements106, and in the present case the trade benefit "relates to international trade in 
livestock, not to domestic markets."107 The United States argues that past Article 22.6 arbitrations 
"involving the Multilateral Agreements on Trade in  Goods have focused on the 'trade effect' of the 
WTO-inconsistent measure".108 According to the United States, Canada's and Mexico's "claims with 
                                               
103 See Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 52. 
104 Canada's methodology paper, Su mner Study, paras. 31-42 and 140-143; Mexico's methodology 
paper, paras. 24-27; Mexi co's methodology paper, Pouliot Study, pp. 21-24. 
105 United States' written submission, para. 118. 
106 United States' written submission, paras. 119-121.  
107 United States' written submission, para. 122.  
108 United States' written submission, para. 120 (referring to Decisions by the Arbitrators, US – Offset 
Act (Byrd Amendment) (Article 22.6 – US) , paras. 3.38 and 3.69; EC – Hormones (Article 22.6 – EC) , para. 
41; EC – Bananas III (Ecuador) (Article 22.6 – EC) , paras. 168-169; EC – Bananas III (US) (Article 22.6 – EC) , 
paras. 6.6-6.12; and US – Gambling (Article 22.6 – US) , para. 3.123). WT/DS384/ARB ● WT/DS386/ARB 
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  respect to internal transactions within  their domestic economies … are not lost exports to the 
United States, and thus are not properly included in a measurement of either Canada or Mexico's 
nullification or impairment of trade benefits under the covered agreements".109 The United States 
also argues that, if domestic price suppression losses are included in the nullification or 
impairment, the level of suspension would similarly have to account for broader economic effects 
of the suspension within the United States in order to maintain equivalence under Article 22.4 of the DSU.
110 In the United States' view, "the requesting parties' approach would include domestic 
price effects on only one side of the equation (the side that benefits them), and would omit it and 
other economic effects from the other side of the equation" in contravention of the equivalence requirement.
111 
5.3.  According to Canada, Article 3.3 of the DSU "sets out a very broad ground rule for WTO 
dispute settlement" that includes benefits accruing "directly or indirectly" under the covered 
agreements.112 Canada defines the benefit in question as "national treatment for Canadian live 
cattle and hogs in the United States", a benefit that was adversely affected resulting, given the 
"highly integrated and co-dependent nature of th e two markets … in more Canadian livestock in 
Canada, which suppressed the prices of these animals in the Canadian market, resulting in specific and quantifiable losses."
113 Canada maintains that these are "direct losses from the denial of a 
direct benefit".114 Canada argues in the alternative that these domestic price suppression losses 
are "at the very least losses that result from the impairment of an indirect benefit of national treatment, which is a benefit covered under the DSU".
115 Canada submits that there is nothing in 
the DSU that limits the level of nullification or impairment to "export losses", and cites prior Article 
22.6 arbitrations in support of "a broad interpretation of 'trade effects'."116 Canada thus contends 
that "trade effects" need not be limited to export losses, but can include domestic impacts where causation can be demonstrated.
117  
5.4.  Mexico states that the benefit being nullified or impaired is the "right of not having to face a 
measure like the COOL measure."118 According to Mexico, it is "[b]y virtue of the nullification or 
impairment of this benefit by the COOL measur e, [that] Mexican domestic prices have been 
suppressed."119 Mexico argues that the covered agreements refer to direct or indirect benefits, and 
that Mexico's benefits under the covered agreements "should have prevented this [domestic] price suppression from occurring".
120 M e x i c o  a l s o  r e l i e s  o n  p r e v i o u s  a r b i t r a t i o n s  i n  w h i c h  i t  c o n t e n d s  
effects on domestic markets were not excluded.121 Mexico thus submits that the losses to be 
calculated in estimating nullification or impairment are those that can be shown to be caused by 
the WTO-inconsistent measure.122  
5.1.2  Analysis by the Arbitrator 
5.5.  The question raised in this arbitration is whether (and, if so, how) "price suppression losses" 
incurred by Canadian and Mexican livestock producers in their domestic  markets can be included in 
the level of nullification or impairment under Article 22 of the DSU.  
5.6.  Although prior arbitrators have considered losses other than those based strictly on actual 
trade flows, this specific question has not previously been addressed in arbitration proceedings. For instance, the arbitrator in EC – Bananas III (Ecuador) (Article 22.6 – EC)  rejected Ecuador's 
                                               
109 United States' written submission, para. 121. (emphasis original) 
110 United States' written submission, paras. 126-127;  United States' opening statement at the meeting 
of the Arbitrator, para. 59. 
111 United States' opening statement at the meeting of the Arbitrator, para. 67 (citing Decision by the 
Arbitrators, EC – Bananas III (US) (Article 22.6 – EC) , para 7.1. 
112 Canada's written submission, para. 95.  
113 Canada's written submission, para. 96.  
114 Canada's written submission, para. 96.  
115 Canada's written submission, para. 97.  
116 Canada's written submission, para. 100. 
117 Canada's written submission, paras. 101-107.  See also Canada's opening statement at the meeting 
of the Arbitrator, para. 31.  
118 Mexico's written su bmission, para. 57.  
119 Mexico's written su bmission, para. 57.  
120 Mexico's written su bmission, para. 69. 
121 Mexico's written submission, paras. 73-78.  
122 Mexico's written submission, paras. 60-68. WT/DS384/ARB ● WT/DS386/ARB 
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  argument that "the total economic impact of the EC banana regime should be taken into account 
by the Arbitrators by applying a multiplier when calculating the level of nullification and 
impairment suffered by Ecuador", on the grounds that Ecuador had not included this in its initial request to the DSB.
123 The arbitrator in US – Gambling (Article 22.6 – US)  similarly decided not to 
apply "a multiplier reflecting the aggregate change in output" and indirect, cross-sectoral effects of 
the measure on the domestic economy, but this deci sion was not based on a legal interpretation of 
the scope of "benefits" accruing under the covered agreements.124 While the arbitrators in US – 
1916 Act (EC) (Article 22.6 – US) and US – Section 110(5) Copyright Act (Article 25) did not 
strictly limit their analysis to "trade effects", their "reliance on the broader concept of economic impact was dictated by the nature of the measures at issue", which did not directly restrict trade.
125 Moreover, the effects they considered were not focused on economic gains or losses 
within  the domestic market of the requesting parties.126 Finally, although the arbitrator in US – 
Offset Act (Byrd Amendment) (Article 22.6)  observed that "the term 'trade effect' is found neither 
in Article XXIII of the GATT 1994, nor in Article 22 of the DSU", it recognized that "the 'trade 
effect' approach … seems to be generally accepted by Members as a correct application of 
Article 22 of the DSU".127 
5.7.  As discussed above, our mandate under Article 22.7 of the DSU is to "determine whether the 
level of … suspension is equivalent to the level of nullification or impairment". As established by 
Article 3.1 of the DSU, the concept of "nullificati on or impairment" is taken from Article XXIII:1 of 
the GATT 1994, which provides for the nullification  or impairment of "any benefit accruing […] 
directly or indirectly under this Agreement".128  
5.8.  Neither "nullification or impairment" nor th e "benefit" accruing under the covered agreements 
is explicitly defined in the GATT 1994 or in the DSU. The Appellate Body commented on the scope 
of these concepts in the context of Article 3.8 of the DSU, which provides: 
In cases where there is an infringement of the obligations assumed under a covered 
agreement, the action is considered prima facie  to constitute a case of nullification or 
impairment. This means that there is normally a presumption that a breach of the 
rules has an adverse impact on other Members parties to that covered agreement, 
and in such cases, it shall be up to the Member against whom the complaint has been 
brought to rebut the charge.129 
5.9.  The Appellate Body observed that "Article 3.8 equates the concept of 'nullification or 
impairment' with 'adverse impact on other Members', although the DSU does not define 'adverse 
impact'".130 The Appellate Body further considered that "[t]rade losses represent an obvious 
example of adverse impact under Article 3.8."131 At the same time, the Appellate Body did not 
purport to provide a comprehensive explanation of the types of adverse impact that can be 
presumed in the case of WTO-inconsistent measures; nor was the Appellate Body concerned with 
                                               
123 Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 24 (stating that 
this was "not compatible with the minimum sp ecificity requirements for such a request"). 
124 Decision by the Arbitrator, US – Gambling (Article 22.6 – US) , para. 3.123 (explaining the parties' 
agreement on the counterfactual basis for calculating nullif ication or impairment as well as the incompatibility 
of using a multiplier with other arguments that  had been raised by Antigua in that case). 
125 Decision by the Arbitrator, US – Offset Act (Byrd Amendment)  (Mexico) (Article 22.6 – US) , para. 
3.40. 
126 In particular, it was noted that in US – Section 110(5) Copyright Act (Article 25)  "no actual trade 
took place, but rights had been breached which conferred economic benefits", and that in US – 1916 Act (EC) 
(Article 22.6 – US)  the challenged measure created the potential for criminal and civil liabili ty of importers, but 
it "did not automatically restrict trade", making "the broader concept of economic effect … more appropriate."  
Decision by the Arbitrator, US – Offset Act (Byrd Amendment)  (Mexico) (Article 22.6 – US) , para. 3.40; see 
also Award of the Arbitrators, US – Section 110(5) Copyright Act (Article 25) , para. 3.18; Decision by the 
Arbitrators, US – 1916 Act (EC) (Article 22.6 – US) , para. 7.7. 
127 Decision by the Arbitrator, US – Offset Act (Byrd Amendment)  (Mexico) (Article 22.6 – US) , paras. 
3.70-3.71. (emphasis original) 
128 Article 3.3 of the DSU also refers to the "pro mpt settlement of situations in which a Member 
considers that any benefits accruing to it directly or indirectly under the co vered agreements are being 
impaired by measures taken by another Member". 
129 Underline added. 
130 Appellate Body Reports, EC – Export Subsidies on Sugar , para. 296. 
131 Appellate Body Reports, EC – Export Subsidies on Sugar , para. 299. WT/DS384/ARB ● WT/DS386/ARB 
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  quantifying nullification or impairment as is our mandate to fulfil as Arbitrator under Article 22 of 
the DSU.  
5.10.  In the context of non-violation complaints  under Article XXIII:1(b) of the GATT 1994, "the 
claimed benefit has been considered to be that of "legitimate expectations of improved market-
access opportunities arising out of relevant tariff concessions."132 The "nullification or impairment" 
of such benefits has been equated with "'upse tting the competitive relationship' established 
between domestic and imported products as a result of tariff concessions".133 In the compliance 
phase of these disputes, the panel applied a similar understanding of the "nullification or 
impairment of benefits" with respect to Cana da's and Mexico's non-violation claims under 
Article XXIII:1(b) of the GATT 19 94 and Article 26.1 of the DSU.134 Although the panel was 
addressing a distinct issue in that context135, the applicable principles for non-violation nullification 
or impairment suggest that market access is the primary, though possibly not exclusive, benefit 
that is nullified or impaired. Such market access may be impaired not only by violations of tariff concessions but also by violations of rules and disciplines on non-tariff measures.
136  
5.11.  Unlike non-violation claims, this arbitration concerns the nullification or impairment of 
benefits that flow from specific provisions violated by the COOL measure.137 The link between the 
WTO-inconsistency and the benefits that are nulli fied or impaired is evident in the text of 
Article XXIII:1(a) of the GATT 1994, which stipulat es that nullification or impairment occurs " as a 
result of  the failure of another contracting party to carry out its obligations".138 Thus, the relevant 
"benefits" being nullified or impaired are those accruing to Canada and Mexico under the provisions breached by the COOL measure, namely the national treatment obligations of Article 
2.1 of the TBT Agreement and of Article III:4 of the GATT 1994.  
5.12.  It is well-established that the national treatment obligation that has been infringed "requires 
effective equality of opportunities for imported products to compete with like domestic 
products".
139 At least one benefit flowing from national treatment, therefore, is the ability to 
compete in a foreign market, which in this case means market access for livestock imported into the United States.
140 Where such market access is the benefit that is being nullified or impaired, 
the quantification of that nullification or impairment will naturally focus on trade flows (or a proxy 
thereof) as the measure of such access.141 We note that Canada's and Mexico's calculations of lost 
export revenues are aimed at doing just that, namely quantifying the amount of lost market 
access.       
                                               
132 Panel Report, Japan – Film , para. 10.61. The panel noted that "[o]nly in EC - Citrus Products  did the 
complaining party claim that the be nefit denied was not improved ma rket access from tariff concessions 
granted under GATT Article II, but rather GATT Article I: 1 ('most-favoured-nation') treatment with respect to 
unbound tariff preferences granted by the EC to certain Mediterranean countries." Panel Report, Japan – Film , 
fn 1223. See also Panel Reports, EC – Asbestos , para. 8.285; US – COOL (Article 21.5 – Canada and Mexico) , 
para. 7.676. 
133 Panel Report, Japan – Film , para. 10.82. 
134 See Panel Reports, US – COOL (Article 21.5 – Canada and Mexico) , paras. 7.676 and 7.713. 
135 The particular issue a ddressed by the panel was whether there were "benefits accruing" under WTO 
agreements when NAFTA (and not the MFN-ra te) accorded duty-free access to livestock. 
136 See, e.g. GATT Panel Reports, EEC – Oilseeds I , para. 156 (finding "that benefits accruing … under 
Article II of the General Agreement in respect of the ze ro tariff bindings for oilseeds … were impaired as a 
result of the introduction of production subsidy sch emes which … prevent the tariff concessions from having 
any impact on the competitive relationship be tween domestic and impo rted oilseeds"); and EEC – Oilseeds II , 
para. 90 (finding "that benefits accruing … under Articl e II of the General Agreement in respect of the zero 
tariff bindings for oilseeds … continue to be impaired by the production subsidy scheme" at issue in that 
dispute). 
137 We note that non-violation complaints are not si milarly constrained given that, by definition, no 
specific provision is violated.  
138 See section 4.1 above. (emphasis added) 
139 See Panel Reports, US – COOL (Article 21.5 – Canada and Mexico) , para. 7.623 (quoting 
Appellate Body Reports, EC – Seal Products , para. 5.101).  
140 This is particularly evident in view of the highly  integrated nature of the North American livestock 
market, discussed further below. Unde r such circumstances, the legitimate expectations of operators may be 
easily upset in a duty-free environment where the WTO violation (and market access restriction) comes not 
from a tariff increase but from a non-tariff measure disproportionately affecting foreign suppliers. 
141 Whether such losses refer to loss es of actual or potential trade is  a different question that is not 
raised in this arbitration. See, e.g. Decision by the Arbitrators, US – 1916 Act (EC) (Article 22.6 – US) , paras. 
5.64-5.72. WT/DS384/ARB ● WT/DS386/ARB 
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  5.13.  By additionally claiming losses from do mestic price suppression, Canada and Mexico go 
beyond the concept of market access and "trade effects" as the measure of market access. The 
question, therefore, is whether, in the context of determining nullification or impairment under 
Article 22 of the DSU, the benefits flowing from  national treatment go beyond the benefit of 
market access, and particularly whether they extend to price effects in the domestic market of a 
requesting party. 
5.14.  Canada and Mexico submit that the benefits do go beyond market access, essentially by 
understanding "nullification or impairment of be nefits" to refer to any adverse effects resulting 
from the violation of the national treatment oblig ations at issue. According to this logic, the 
determinative criterion for including or excluding losses would be the causal link between the violation and the claimed effect.
142 We disagree with this view for the three reasons set out below. 
5.15.  First, with regard to the ordinary meanin g of the relevant terms, the breadth of the term 
"benefit" as used in the covered agreements does not mean that it is unlimited. We recall that the compliance panel in these disputes set forth the following considerations for the scope of the term 
"benefits" and the significance of their accrual "directly or indirectly": 
Article XXIII:1(b) of the GATT 1994 refers to "any benefit accruing to [a Member] 
directly or indirectly under [the GATT 1994]." Similarly, Article 26.1 of the DSU refers 
to "any benefit accruing to [a Member] directly or indirectly under the relevant 
covered agreement". Dictionary definitions of "benefit" include "an advantage, a good" and "pecuniary profit".
143 Additionally, dictionary definitions of "accrue" include "of a 
benefit or sum of money [, to] be received in regular or increasing amounts" and 
"arise or spring as a natural growth or result".144 In principle, these definitions do not 
preclude that a benefit may "accrue " without being actually utilized. 
By protecting benefits that accrue "directly or indirectly", both Article XXIII:1(b) of the 
GATT 1994 and Article 26.1 of the DSU suggest a possibly broad scope for the term 
"benefit". Further, both Articles refer to "a ny" benefit. Given the dictionary definition 
of the word "any", these provisions might apply "no matter which, or what"145 
particular benefit is at issue. This would not support narrowing the term "benefit" to a 
specific manner of enjoyment or entitlement.146 
5.16.  The foregoing examination of the ordinary  meaning of the relevant terms – albeit under 
separate provisions regarding non-violation claims – is indicative of the potential breadth of the 
benefits accruing under the covered agreements. However, this in itself does not answer the 
specific question of whether the claimed domestic losses are within the scope of benefits that are nullified or impaired by a WTO-inconsistency. Even under this broad definition, a "benefit" is an 
"advantage" that is received (or legitimately expected), and it is this "advantage" that is being 
nullified or impaired. The benefit that is nullified or impaired, thus, is conceptually distinct from the right from which it flows.
147 Canada and Mexico, in describing the benefit  as "the national 
treatment for Canadian live cattle and hogs in the United States"148 and "the right of not having to 
face a measure like the COOL measure"149, effectively equate right with benefit. As we see it, the 
right in question is for imported products not to receive less favourable treatment than domestic products; the extent to which the advantage flowing from the right has been diminished is a 
separate question from what that right is. Thus, the right to national treatment under the covered 
agreements does not itself establish or prejudge the scope of benefits accruing therefrom.
  
                                               
142 See, e.g. Canada's and Mexico's  responses to question No. 24. 
143 (footnote original) Shorter Oxford English Dictionary , 6th edn, A. Stevenson (ed.) (Oxford University 
Press, 2007), Vol. 1, p. 220. 
144 (footnote original) Shorter Oxford English Dictionary , 6th edn, A. Stevenson (ed.) (Oxford University 
Press, 2007), Vol. 1, p. 16. The latter definition adds that it is especially used in law "of the coming into existence of a possible cause of action". 
145 (footnote original) Shorter Oxford English Dictionary , 6th edn, A. Stevenson (ed.) (Oxford University 
Press, 2007), Vol. 1, p. 95. 
146 Panel Reports, US – COOL (Article 21.5 – Canada and Mexico) , para. 7.682. 
147 See, e.g. Decisions by the Arbitrators, US – Offset Act (Byrd Amendmen t) (Mexico) (Article 22.6 – 
US), paras. 3.20-3.32; and EC – Bananas III (US) (Article 22.6 – EC) , paras. 6.9-6.11. 
148 Canada's written submission, para. 96. 
149 Mexico's written su bmission, para. 57.  WT/DS384/ARB ● WT/DS386/ARB 
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  5.17.  Moreover, we do not consider the phrase "directly or indirectly" to be a clear basis for 
distinguishing benefits accruing "directly" and those accruing "indirectly" so as to differentiate 
which losses are part of the nullification or impairment. Although the integral phrase "directly or indirectly" weighs against a narrow reading of "benefits", this does not necessarily extend the 
scope of nullification or impairment to other losses such as those caused, as is claimed here, by 
domestic price suppression. Indeed, both Cana da and Mexico submit that domestic price 
suppression losses constitute the nullification or impairment of a benefit directly accruing to them, 
and in the alternative claim that such losses correspond to benefits accruing indirectly.
150 
5.18.  Second, in terms of relevant context, we see a number of contextual provisions within the 
DSU as well as the SCM Agreement that weigh against reading "nullification or impairment of benefits" in the manner suggested by Canada and Mexico. We consider this context in interpreting 
the provisions of the WTO covered agreements in a coherent manner, giving meaning to all 
provisions harmoniously.
151 Articles 21.8 and 22.3(d)(ii) of the DSU, which are immediate context 
to Article 22.7, suggest that the consideration of domestic economic effects is distinct from 
measuring the nullification or impairment of be nefits. Article 21.8 of the DSU applies to cases 
brought by developing country Members, and directs the DSB to "take into account" the "impact on the economy of developing country Members concerned". This provision (which has not been 
raised in these proceedings as a basis for including domestic price suppression losses) does not 
address the level of nullification or impairment that it is our mandate to assess under Article 22 of the DSU.
  In particular, the text of this provision suggests that it relates to a requirement imposed 
on the DSB to take into account specific factors "in considering what appropriate action might be 
taken". This does not concern arbitration under Article 22.6, but rather the DSB's discharge of its 
functions in Article 2.1 of the DSU regarding "the  surveillance of implementation of DSB rulings 
and recommendations" that is the subject of Article 21 of the DSU.  
5.19.  Article 22.3(d)(ii) of the DSU addresses "principles and procedures" that complaining parties 
are required to apply among others "[i]n considering what concessions or other obligations to suspend", and provides that a "party shall take into account … the broader economic elements 
related to the nullification or impairment and the broader economic consequences of the 
suspension of concessions or other obligations". Crucially, this provision is relevant when assessing a request to cross-retaliate (i.e. across different sectors and agreements than those in which violations were found) and thus concerns the specific targets of the suspended concessions. 
Importantly for our analysis, it does not concern the level of that suspension based on the 
nullification or impairment of benefits.
152 Thus, while the DSU provides for consideration of 
domestic economic effects in specific contexts, it makes no indication of similar considerations 
being relevant to the level of nullification or impairment that it is our mandate to assess. 
5.20.  Furthermore, we note that the SCM Agreement makes it clear that "nullification or 
impairment" is a concept that is distinct from other adverse effects and, in particular, from 
domestic injury. Article 5 of the SCM Agreement se ts out three distinct categories of "adverse 
effects", namely (a) injury to the domestic industry, (b) nullification or impairment, and (c) serious prejudice. Nullification or impairment is explicit ly linked to the GATT 1994, with footnote 12 to 
Article 5 of the SCM agreement stipulating that "[t]he  term 'nullification or impairment' is used in 
this Agreement in the same sense as it is used  in the relevant provisions of GATT 1994, and the 
existence of such nullification or impairment shall be established in accordance with the practice of application of these provisions." Article 5 also makes clear that injury to domestic industry 
specifically encompasses the effect of "depress[ing]  prices to a significant degree" or preventing 
                                               
150 See, e.g. Canada's written submis sion, para. 96-97; Mexico's response  to Arbitrator question No. 24, 
para. 74. 
151 See Appellate Body Reports, EC – Seal Products , para. 5.123 (citing Appellate Body Reports, US – 
Anti-Dumping and Countervailing Duties (China) , para. 570; and US – Upland Cotton , paras. 549-550 (quoting 
Appellate Body Report, Argentina – Footwear (EC) , para. 81 and fn 72 thereto, in turn referring to Appellate 
Body Reports, Korea  – Dairy , para. 81; US – Gasoline , p. 23; Japan – Alcoholic Beverages II , p. 12; and India 
– Patents (US) , para. 45)). 
152 For example, this provision was integral to the assessment of the arbitrator in EC – Bananas III 
(Ecuador) (Article 22.6 – EC)  regarding Ecuador's request to resort to cross-retaliation, particularly in 
conjunction with the stipulation in Article 22.3(c) "that the circumstances are serious enough" to warrant suspension "under another covered agreement".  That arbitrator was not addressing the inclusion of that 
broader economic impact in the calculation of the level of nullification or impairme nt, but rather whether that 
economic impact had been taken into account in Ec uador's request to suspend concessions under another 
agreement.
 Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , paras. 131-138. WT/DS384/ARB ● WT/DS386/ARB 
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  price increases.153 We consider it meaningful for our find ings that the SCM Agreement explicitly 
distinguishes such domestic price suppression effects from nullification or impairment in the sense 
of the GATT 1994.154 
5.21.  Third, in addition to the contextual argu ments above, we consider the preamble to the WTO 
Agreement, which the parties discussed at the su bstantive meeting. To the extent that the 
preamble sets out the "objectives" of the treaty, an initial point is that the term "objectives" is not 
to be conflated with the term "benefits". This is  readily apparent from Article XXIII:1 of the GATT 
1994, which refers separately to situations in which "any benefit … is being nullified or impaired" 
and those in which "the attainment of any objective of the Agreement is being impeded". We note that Article 22 of the DSU does not contain any reference to the objectives of the covered agreements being impeded, but only to nullification  or impairment; by contrast, Article 26 of the 
DSU concerning non-violation and situation complaints is addressed to nullification or impairment 
or the attainment of any objective being impeded. Thus, the fact that domestic price suppression 
caused by a WTO-inconsistency may impede certain objectives  of the Agreement does not mean 
that such price suppression is the nullification or  impairment of a benefit under Article 22 of the 
DSU.   
5.22.  The preamble to the WTO Agreement makes cl ear in its first recital that trade relations are 
linked to domestic economic gains such as "raisi ng standards of living, ensuring full employment 
and a large steadily growing volume of real income and effective demand, and expanding the 
production of and trade in goods and services".
155 In addition, the third recital of the preamble 
expresses the desire "of contributing to these objectives by entering into reciprocal and mutually 
advantageous arrangements directed to the substantial reduction of tariffs and other barriers to 
trade and to the elimination of discriminatory treatment in international trade relations".156 
Similarly, the fourth recital of the preamble ex presses the fundamental resolution "to develop an 
integrated, more viable and durable multilateral  trading system" on the basis of past trade 
liberalization and the results of prior trade negotiations. Thus, while the economic gains ultimately derived from trade are not limited to trade fl ows themselves, the WTO Agreement frames such 
broader economic gains as an end for which trade and market access are an essential means.  
5.23.  It is the interests of trade and market access that underlie Members' concessions and the 
legal remedies designed to safeguard those concessions. Hence, a "major goal for [Articles XXII and XXIII of the GATT 1994] was to provide a means for ensuring continued reciprocity and 
balance of concessions in the face of possibly changing circumstances."
157 Insofar as the rights and 
obligations under the covered agreements are grounded in a balance of trade concessions, the 
nullification or impairment of benefits is appropriately focused on the trade losses occasioned by a 
disruption of those concessions. Simply put, trad e is a means to broader economic gains, and this 
trade is protected as a benefit accruing under the covered agreements. 
5.24.  In light of the foregoing, the fact that adverse effects may exist beyond trade losses does 
not necessarily imply their inclusion in the level of "nullification or impairment of benefits" under 
                                               
153 See Article 15.2 of the SCM Agreement. Footnote 11 to Article 5 of the SCM Agreement stipulates 
that "[t]he term 'injury to domestic injury' is used here  in the same sense as it is  used in Part V" regarding 
countervailing measures, which includes Article 15.2. 
154 It is notable that the SCM Agreement not only dist inguishes domestic injury effects from nullification 
or impairment, but also creates a special rule for DS U arbitrators to account for those effects. Thus, the 
remedies for the "adverse effects" of actionable subsidies, set out in Article 7.10 of the SCM Agreement, direct 
arbitrators to "determine whether the countermeasures are commensurate with the degree and nature of the adverse effects determined to exist" . This remedy in Article 7.10 of the SCM Agreement, which departs from 
the strict mandate of arbitrators under Article 22 of th e DSU, comprises a "special or additional rule" that, 
pursuant to Article 1.2 and Appendix 2 of the DSU, prevails to the extent of any difference with other DSU 
rules and procedures.  
155 See also second recital of the preamble to the GATT 1994. 
156 See also third recital of the preamble to the GATT 1994. 
157 John H. Jackson, World Trade and the Law of GATT  (Bobbs-Merrill Company, Inc., 1969), p. 170. See 
also Ibid. p. 246 (noting that an "assumption underlying trade negotiations is that concessions will be protected by the GATT general pr ovisions relating to nontariff barriers"); and E-U. Petersmann, The GATT/WTO 
Dispute Settlement System: International Law, International Organizations and Dispute Settlement  (Kluwer 
Law International, 1997),  pp. 142-143 (describing the concept of nullification or impairment as serving "to 
protect the agreed tariff reductions as  well as the reciprocal 'balance of concessions' from being undermined by 
non-tariff trade barriers or by other government al measures"). WT/DS384/ARB ● WT/DS386/ARB 
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  Article 22 of the DSU. Indeed, it is readily conceivable that trade losses would result in 
corresponding domestic impacts – just as the trade disciplines of the WTO agreements are 
expected to foster domestic economic gains, such gains may be diminished or lost when there is a violation of those disciplines. This does not mean that all such losses may be rebalanced through 
suspension of concessions under Article 22 of the DSU. In the case of domestic price suppression, 
identifying the "net loss" suffered would raise an additional question of whether, and how, to 
account for positive effects for downstream consumers of the price-suppressed product in the 
domestic market.  
5.25.  At the same time, we are not persuaded that including domestic price suppression would 
require us to account for similar economic impacts in the domestic market of the objecting Member in order to ensure "an apples-to-apples determination of equivalency".
158 The equivalence 
requirement set out in Article 22.4 of the DSU applies to the equivalence of two levels , irrespective 
of how the concepts of "nullification or impairment " and "benefit" are interpreted. It is not for the 
Arbitrator to ascertain whether equivalence is maintained in the application of countermeasures. 
This would require the measurement of future losses  as well as an examination of the nature of 
the concessions suspended, which Article 22.7 expressly prohibits us from considering.159 Should 
the effect of the suspension of concessions exceed  the level of nullification or impairment, whether 
due to the manner of application or the nature of concessions suspended, the Member concerned 
could have recourse to DSU procedures challenging the consistency of the level of the suspension with Article 22.4 of the DSU.
160 
5.26.  Finally, all parties have referred to the proposal being considered by Members in the DSB 
Special Session as part of the "negotiations on  improvements and clarifications" to the DSU.161 
This proposal concerns an amendment of Article 22.4 of the DSU to take into account the economic impact of the inconsistent measure on the economy of a developing country 
complainant.
162 Canada and Mexico note the differences between the original proposal under 
negotiation (regarding broader economic effects on developing countries) and the nature of their requests, which pertain to direct losses to a particular domestic industry.
163 We agree with Canada 
and Mexico that the proposal being discussed in the DSU negotiations provides little interpretive 
guidance for the question presented in this arbitr ation, including due to the substantive differences 
between the proposal itself and the particular losses claimed by Canada and Mexico. More generally, we are not persuaded by the United States' contention that negotiation of a given item 
necessarily proves that it does not exist under current DSU rules.
164 Proposals to clarify and 
improve existing DSU rules are without prejudice to Members' differing views165 on the legal 
interpretation of the rules as they currently stand.  
5.27.  In conclusion, we consider that the relevant benefit in this case is the market access that 
has been nullified or impaired as a result of th e COOL measure. Therefore, we do not include the 
domestic price suppression losses claimed by Canada and Mexico in the level of nullification or 
impairment of benefits. Consequently, we focus the remainder of our analysis on the claimed level 
of export revenue losses caused by the COOL measure. 
5.2  Calculation of Lost Export Revenues 5.28.  In this section, we assess the proposed le vel of suspension by reference to the level of 
nullification or impairment caused by the COOL measure, as calculated by Canada and Mexico in 
respect of export revenue losses. As noted above in section 3.1, Canada submits CAD 2,045 
                                               
158 United States' written submission, para. 127. 
159 Decisions by the Arbitrators, EC – Hormones (US) (Article 22.6 – EC) , paras. 18-19; US – 1916 Act 
(EC) (Article 22.6 – US) , paras. 5.40-5.44 and 7.4; and EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 
159. 
160 See Decision by the Arbitrators, EC – Hormones (US) (Article 22.6 – EC) , para. 82; see also para. 
4.6 above. 
161 Doha Ministerial Declaration, WT/MIN(01)/DEC/1, para. 30. 
162 The particular amendment suggested was to add th e following text after th e current provisions of 
Article 22.4: "If the case is one brought by a developing country Member, the level of nullification and impairment shall also include an estimate of the impact of the inconsistent measure on the economy of such Member." TN/DS/26, para. 819. 
163 See Canada's written submission, para. 99;  Mexico's written su bmission, para. 80. 
164 See United States' written submission, paras. 123-125. 
165 See TN/DS/26, paras. 819-832. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  million and Mexico USD 514.8 million in export revenue losses. To calculate the export revenue 
losses caused by the COOL measure, Canada and Mexico separately estimate impacts on export 
prices and quantities, which we address accordingly in separate sections below.  
5.29.  We observe that Canada and Mexico principally rely on econometric analysis, specifically 
linear regression analysis, in their respective methodologies for calculating the impact of the COOL 
measure. As noted above, in addition Canada relies on a descriptive analysis to estimate the impact of COOL on prices for feeder pigs, and Mexico relies on an elasticity simulation to estimate 
the impact of COOL on quantities of feed er cattle exported to the United States.
166 
5.30.  As regards econometric analysis, we recall that the original and compliance panels in these 
disputes examined economic and econometric ev idence submitted in connection with the legal 
claims raised in respect of the original and amended COOL measure's detrimental impact on 
imported livestock. As stated by both panels, it wa s not necessary to verify actual trade effects to 
dispose of the national treatment claims before  them, and the review of such evidence was 
pursuant to the function of panels to make an objective factual assessment under Article 11 of the 
DSU. Further, the original panel emphasized that this assessment did not concern "any level of 
nullification or impairment, let alone whether ther e is any equivalence with any suggested level of 
suspension of concessions or other obligations", as these were matters "to be decided by an 
eventual arbitration under Article 22.6 of the DSU and on the basis of evidence submitted in the 
context of such arbitration".167 
5.31.  Given the prominence of econometrics in these proceedings, we briefly set out a background 
explanation of the main features of this methodolog y. Essentially, in a linear regression analysis, a 
"dependent" variable (that is, the variable of interest) is modelled as a linear function of a number 
of "explanatory" variables. These explanatory variables ideally represent the full set of factors that have an impact on the dependent variable, and th erefore contribute to "explaining" the behaviour 
of the dependent variable. In general, the expl anatory variables are assumed to be independent 
with respect to the dependent variable. In other wo rds, the dependent variable is assumed to have 
no impact (direct or indirect) on the explanatory variables that, in turn, have an impact on the 
dependent variable. 
5.32.  For each explanatory variable included in the econometric model, a specific parameter is 
attached to it. This parameter represents the im pact that the associated explanatory variable 
might have on the dependent variable. Thus, when the econometric model is well specified with all 
relevant explanatory variables, each parameter isolates the impact of the associated explanatory 
variable on the dependent variable.
168 In their methodologies, Canada and Mexico use parameters 
associated with the COOL measure to calculate what the export price (and quantity, for Canada) of 
livestock would have been without  the combined effect of the original and amended COOL 
measure.  
5.33.  While we note the United States' broad contention that econometric modelling is unsuitable 
for accurately estimating the impact of the COOL measure, principally due to the alleged 
impossibility of accurately accounting for all relevant variables, we also note that arguments regarding the fundamental flaws or unsuitability of econometric modelling to estimate trade effects cannot be assessed in the abstract.
169 We therefore assess Canada and Mexico's proposed levels of 
suspension by examining the specific application of their methodologies in determining the level of 
nullification or impairment caused by the COOL measure.  
                                               
166 These two different methodologies will be elaborated upon in greater detail below. See sections 
5.2.1.3 and 5.2.2.2 below. 
167 See Panel Reports, US – COOL , paras. 7.438-7.453; US – COOL (Article 21.5 – Canada and Mexico) , 
para 7.183. 
168 In addition to the explanatory variables, an econ ometric model includes an error term, also known as 
the "residual" term, to capture the facts that no matt er how well the model is specified: (i) it is often 
impossible to account for every factor that has an impact  on the dependent variable; (i i) the actual relationship 
between the dependent variable and (some of) the explanatory variables may not be necessarily linear; (iii) data may suffer from measurement errors; and (iv)  unpredicted – stochastic – effects can affect the 
dependent variable.  
169 See United States' opening statement at the meeting of the Arbitrator, paras. 27-40; United States' 
written submission (Canada), para. 101-102; United St ates' written submission (Mexico), paras. 73-74. WT/DS384/ARB ● WT/DS386/ARB 
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  5.2.1  Price impact estimation 
5.2.1.1  Use of price basis to estimate  the COOL impact on export prices 
5.34.  As stated in section 3.1, for their computation of export revenue loss, Canada and Mexico 
rely on an econometric estimation of the impact of the COOL measure on "price basis".170 The 
price basis is the differential between the price of Canadian/Mexican exported livestock and the 
price of US-origin livestock. Thus, Canada and Mexi co do not directly estimate the impact of the 
COOL measure on the absolute level of export prices; rather, they equate the absolute price 
impact with the degree to which the COOL measure has widened the price basis (i.e. increased the 
difference between the export price and the US price) to the detriment of foreign-origin livestock. 
5.35.  Before addressing the parties' arguments, we note that Canada and Mexico define the price 
basis differently. Canada defines the price basis as the difference between the export price of 
Canadian livestock in Canada and the price of United States' livestock in the United States171, while 
Mexico defines the price basis as the difference between the price of exported Mexican livestock in the United States and the price of United States' livestock in the United States.
172 In other words, 
Canada compares the price of livestock in two different countries (i.e. Canada and the United 
States), while Mexico compares the price of livestock in the same country (i.e. the United States).  
5.36.  In this Decision, reference to the "expor t price" means the price of Canadian and Mexican 
livestock as defined in their re spective methodologies, unless specified otherwise. Additionally, 
reference to the "US price" means the price of comparable livestock of US-origin within the United States.  
5.2.1.1.1  Arguments of the parties 
5.37.  The United States challenges the Canada’s and Mexico’s use of the price basis, rather than 
the actual export price, to estimate lost export revenue.
173 The United States argues that if 
Canada's and Mexico's "export equations had all the proper exogenous variables then [they] could 
have used those same exogenous variables to expl ain the [effect on Canadian and Mexican] prices 
directly rather than just through a price basis analysis."174 The United States notes, however, that 
because livestock prices have increased during th e relevant period, applying the same exogenous 
variables that Mexico and Canada used in their analyses would show that the COOL measure 
actually caused higher prices.175 According to the United States, this demonstrates the "flaws" (in 
respect of Mexico), or "limited explanatory value" (in respect of Canada), of a price basis regression.
176  
5.38.  According to the United States, Canada's and Mexico's model specifications of the price 
basis also prevent them from distinguishing be tween the impacts of the COOL measure on the 
Canadian/Mexican livestock export price and on the United States' livestock price.177 The 
United States asserts that the price basis "includes more than the change in Canadian or Mexican 
price – it naturally also relates to fluctuations up and down in the U.S. price and the rate of these 
                                               
170 Canada's methodology paper, Sumn er Study, para. 13; Mexico's me thodology paper, Pouliot Study, 
p. 14. 
171 See, e.g. Canada's response to Arbitrator questi on No. 6, para. 18 ("Canada uses prices in Canada 
(rather than those within the United States) for estimating price basis impacts because those data ensure that the econometric specification used by Canada most ac curately estimates the impact of the amended COOL 
measure on the prices of livestock in Canada."). 
172 See, e.g. Mexico's opening statement at the meeting of the Arbitrator, para. 15 ("The estimate of the 
COOL measure's impact on the price of Mexican feeder cattle exported to the United States uses a basis 
calculated as the difference in the price of Mexican feeder cattle measured in the United States and the price paid for U.S. feeder cattle in the United States."). 
173 See United States' response to Arbitrator question No. 5. 
174 United States' written submission (Canada), para . 104; United States' written submission (Mexico), 
para. 75.  
175 United States' written submission (Canada), para . 104; United States' written submission (Mexico), 
para. 75; United States' response to Arbitrator question  No. 35, para. 8. 
176 United States' written submission (Canada), para . 104; United States' written submission (Mexico), 
para. 75.  
177 United States' written submission (Canada), para . 107; United States' written submission (Mexico), 
para. 78. WT/DS384/ARB ● WT/DS386/ARB 
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  changes. This difference between two prices cannot  be automatically equated with the price level 
for exports of Canadian and Mexican livestock."178 Because the widened price basis may be due to 
increased US prices, and not just declining import prices, "[u]sing the price basis for determining the actual trade impact of COOL will overstate the price effect."
179  
5.39.  The United States supports its assertion that the COOL measures increased the price of 
United States' livestock through reliance on economic logic, academic research, and data showing that "U.S. prices for U.S. origin livestock have consistently increased following the implementation 
of the COOL measures".
180 The United States also refers to its own application of Canada's "price 
model specification and weekly data to review the U.S. price levels … [to show] that the impact of the original and amended COOL measures on  the U.S. price is in fact positive."
181  
5.40.  In order to show that a change in the pric e basis is not equivalent to a change in actual 
price, the United States notes the definitional  and mathematical distinction between the two 
concepts. Based on this distinction, the United States asserts that, "[i]n principle, any change in the U.S. price will result in a change in the price basis unless it is exactly offset by a change in the 
Canadian or Mexican export price."
182 The United States provides data showing volatility in the 
Canadian-United States' price basis over time and suggests that "if Canada's argument that the basis (i.e., difference between the U.S. and Canadian) prices remained steady over time, until the 
amended COOL measure expanded the basis, we would expect the basis described by the line to 
be flat during this period, rather than wildly fluctuating."
183 According to the United States, this 
makes it "clear [that] other causal factors have affected the basis, and they need to be accounted for in econometric modeling".
184 The United States also argues that "sample econometric analysis 
conducted by the United States based on the eq uations and data provided by the requesting 
parties supports the understanding that price level change and price basis are not equivalent."185 
5.41.  Canada argues that the use of a price basis specification "allows one to capture 
parsimoniously the impacts of a host of variables that may affect livestock prices in both countries 
in a similar way."186 Canada thus suggests that the use of a price basis obviates the need to 
account for any and every variable that might impact the price of livestock in the United States' 
and Canadian markets.187 Canada submits that the "positive theoretical impact of the amended 
COOL measure on U.S. price through reduced import competition will be small because the share of imports is so small", and that any "small positive impact of the domestic impacts of COOL on the U.S. price is countered by small negative effect s on U.S. prices", as reported in a study of US 
domestic effects.
188  
                                               
178 United States' closing statement at the meeting of the Arbitrator, para. 6. See also United States' 
written submission (Canada), para. 107; United States' written submission (Mexico), para. 78. 
179 United States' response to Arbi trator question No. 5, para. 28.  See also United States' written 
submission (Canada), para. 107; United States' written submission (Mexico), para. 78. 
180 United States' response to Arbitrat or question No. 32, paras. 2-5.  
181 United States' response to Arbi trator question No. 32, para. 5 (citing Sample Econometric Analysis 
and Data, (Exhibit USA-61)). In this Decision, exhibits submitted by Canada are refe rred to as CAN-#; exhibits 
submitted by Mexico are referred to as  MEX-#; and exhibits submitted by the United States are referred to as 
USA-#.  
182 United States' response to Arbi trator question No. 33, para. 7. 
183 United States' response to Arbi trator question No. 33, para. 7. 
184 United States' response to Arbi trator question No. 33, para. 7. 
185 United States' response to Arbitr ator question No. 33, para. 8.  
186 Canada's written submission, para. 35. 
187 Canada's written submission, para. 35. 
188 Canada's written submission, pa ra. 36 (citing S. Pouliot and D. Sumner, "Differential impacts of 
country of origin labelling: COOL econ ometric evidence from cattle markets", Food Policy , Vol. 49 (2014), 
(Exhibit USA-35), pp. 107-116; G. Tonsor, T. Schroder, and J. Parcell,  "Economic Impacts of 2009 and 2013 
U.S. Country-of-Origin Labeling Rules on U.S. Beef and Pork Markets",  Project Number AG-3142-P-14-0054 R0, 
Final Report submitted to the USDA Office of the Chief Economist, (26 January 2015) (Exhibit MEX-2, Appendix A to Appendix 15)).  
The study by Tonsor, Schroder, and Parcell was a pr oject funded by the USDA Office of the Chief 
Economist containing the professional opinions of the principal investigators and not those of the USDA or the 
Office of the Chief Economist. The material and conclusions of this study are discussed in the Report to 
Congress of April 2015 by the USDA Office of the Chief Economist, entitled "Economic Analysis of Country of 
Origin Labeling (COOL)" and submitted in these proceedings as Exhibit MEX-2, Appendix 15. The study by WT/DS384/ARB ● WT/DS386/ARB 
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  5.42.  Canada also responds to evidence submitte d by the United States to support the contention 
that a change in price basis is not equivalent to a change in export price levels. Canada notes that 
the United States' evidence of volatility in the price basis over time is "irrelevant" because "Canada has never taken the position that there are no fluctuations in the price basis … [and] Canada never 
argued that the basis remained steady over time before or after COOL."
189 Canada contends that 
the United States' evidence provides "no guidance about the causation related to the amended COOL measure … [whereas] Canada's price basis regressions account for most of this variation and 
specifically isolate the causal effect of COOL on the price basis."
190 Canada criticizes the United 
States' use of Canada's econometrics for "cherry-picking" a single animal category and for "mis-specifying" the equations.
191 Canada also criticises the United States' "sample econometric 
analysis" for relying on parameters acknowledged to be flawed, and confusing the units of 
measurement.192 
5.43.  Mexico submits that the "objective of Mexico's regression model is to explain how the 
differential treatment of cattle in the United States, according to their origin, affected the price 
paid for Mexico feeder cattle."193 Mexico asserts that the price basis measures "only the difference 
in value to the US feeding operations for feeder cattle of Mexican and US origins."194 The use of 
price basis rather than price explains the differential impact, especially because, "[w]ith prices 
measured in the same locations, the number of  variables that affect the basis is limited."195 Mexico 
adds that, while the methodology could be applied to the actual "price paid", such a model "would be plagued with problems that the [price] basis regression does not have."
196  
5.44.  Regarding any potential COOL-related price increase in the United States, Mexico notes that 
such an "increase in … price … would be small in  practice because the market share of imported 
cattle is small relative … to the total size of the U.S. domestic cattle and beef industry", and 
change in import volume caused by the COOL measure is an even smaller share of the US 
market.197 Additionally, according to Mexico, the arbitrage mechanism in the integrated Northern 
American livestock market ensures that the "difference between the two prices reflects exactly the costs associated with the COOL measure that [are] passed on to Mexican feeder cattle."
198 
Additionally, regarding the United States' eviden ce of non-equivalence between change in price 
basis and change in price, Mexico suggests that  the regression model submitted by the United 
States for this purpose does not address Mexico's model199, and is "mis-specified" for failing to 
include US cattle prices as an explanatory variable and for incorrectly applying a first difference to 
the COOL variables.200 Mexico also argues that the short-run volatility in the price basis, as 
identified by the United States, is normal and is accounted for through Mexico's long run econometric regression.
201  
5.2.1.1.2  Analysis by the Arbitrator 
5.45.  We begin by recalling the methodological  background against which Canada and Mexico 
apply their estimates of the COOL impact on price basis. Canada and Mexico quantify the level of 
                                                                                                                                               
Tonsor, Schroder, and Parcell is attached as Appendix  A to the Report by the USDA Office of the Chief 
Economist, and is referred to in this Decision as "Tonsor et al. (2015)". 
189 Canada's comments on the Unit ed States' response to Arbitrat or question No. 33, para. 21. 
190 Canada's comments on the Unit ed States' response to Arbitrat or question No. 33, para. 21. 
191 Canada's comments on the United States' respon se to Arbitrator question No. 33, paras. 24-25. 
192 Canada's comments on the United States' respon se to Arbitrator question No. 33, paras. 26-29. 
193 Mexico's written su bmission, para. 45. 
194 Mexico's methodology pape r, Pouliot Study, p. 8. 
195 Mexico's written su bmission, para. 45. 
196 Mexico's written su bmission, para. 45. 
197 Mexico's written su bmission, para. 48. 
198 Mexico's written submission, para. 49. See also Mexico's opening statement at the meeting of the 
Arbitrator, para. 25 ("The United States also made an argument that somehow the Mexican methodology 
relating to the price basis does not account for increase s in U.S. prices. But since Mexico's pric e basis model 
only examines the difference between prices for Mexican cattle and U.S. cattle when sold within the United 
States, this U.S. argument does not make sense."); Mexico's comments on the United States' response to Arbitrator question No. 33, para. 18 ("Because the North American livestock market is integrated, the change 
in the basis equals the COOL discount for Mexican f eeder cattle compared to U.S. feeder cattle."). 
199 Mexico's comments on the United  States' response to Arbitrator question No. 33, para. 2 (second 
bullet). 
200 Mexico's comments on the United States' response to Arbi trator question No. 33, para. 21. 
201 Mexico's comments on the United States' response to Arbi trator question No. 33, para. 20. WT/DS384/ARB ● WT/DS386/ARB 
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  nullification or impairment as an expression of lo st export revenue, which is defined as the export 
price ( P) multiplied by the associated export volume ( Q). It follows that a change ( ∆) in export 
revenue is defined as the change in the product of export price and export volume ( ∆(PQ)). For 
the purpose of this arbitration, Canada and Me xico propose to compare two terms: (1) export 
revenue observed in the baseline period with the COOL measure in place and (2) export revenue 
that would have been obtained in the absence of the COOL measure. Thus, the difference between the revenue "with" and "without" the COOL measure represents the export revenue loss caused by 
the COOL measure. In this context, Canada and Me xico demonstrate that the expression of export 
revenue loss can be decomposed into three components, where P and Q represent export prices 
and quantities in absolute values in the baseline period, and ∆P and ∆Q represent the 
counterfactual change in export prices and quantities without the COOL measure
202: 
∆(PQ) = ∆PQ +∆QP - ∆P∆Q 
5.46.  Canada and Mexico note that while data on the export price ( P) and export quantities ( Q) in 
absolute levels in the baseline period are readily available, there are no directly available data for 
the two differential terms, ∆P and ∆Q, measuring respectively the change in export price and 
export quantity between the baseline period with  the COOL measure and a counterfactual situation 
without the COOL measure. Both Canada and Mexico propose to estimate separately the 
counterfactual change in export prices ( ∆P) and export volumes ( ∆Q) in the absence of the COOL 
measure. 
5.47.  While the change in export price of livestoc k in absolute terms is one of the key components 
of the expression of export revenue losses, Ca nada and Mexico econometrically estimate the 
impact of the COOL measure on the price basis (rather than on the absolute price level). Both 
Canada and Mexico interpret the estimated coefficients of the COOL measure in the price basis specification as the impact of the COOL measur e on the export price. In other words, the 
methodologies of Canada and Mexico rest on the assumption that the counterfactual impact of the 
COOL measure on the price basis is the same as the counterfactual impact on the Canadian/Mexican export price.  
5.48.  As submitted by the United States, there is a basic definitional and mathematical difference 
between absolute export price levels and price basis differentials.
203 For example, a change in price 
basis can be represented as follows: 
∆(US Price – Export Price) = ∆(US Price) – ∆(Export Price) 
In support of its contention that the change in price basis should not be equated with a change in 
export price, the United States adduces the following illustration: 
∆(US Price) – ∆(Export Price) ≠ ∆(Export Price) 
5.49.  This illustration reflects two key considerat ions about the use of price basis to estimate the 
impact of the COOL measure on export prices  and, by extension, export revenues. One 
consideration concerns the irrelevance of variables that have the same impact on US and export 
prices. A second consideration concerns the conditions under which price basis analysis would yield 
an accurate measure of an explanatory variable's impact on the export price.  
5.50.  Regarding the first consideration, it is clear that any variable that has an equivalent effect 
on the US price and the export price of livestock will have no effect on the price basis. In other 
words, if a given variable increases or decreases the export and US price by the same amount, the 
differential between the prices will remain the same. Indeed, this is a fundamental premise of 
Canada's and Mexico's defence of the use of price basis for the econometric estimation of the 
COOL impact on export price levels. Because price basis only changes when a variable 
differentially affects the export and US price, Canada and Mexico argue that the price basis 
                                               
202 Canada's methodology paper, Su mner Study, expression (3); Mexi co's methodology paper, Pouliot 
Study, expression (2).  
203 See United States' response to Arbitrator question No. 33, para. 7. The equations reproduced here 
are modified to refer to export prices generally rath er than solely from Canada as in the United States' 
illustration. WT/DS384/ARB ● WT/DS386/ARB 
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  equations only need to account for a limited number of variables that have such a differential 
impact.   
5.51.  While it is mathematically apparent that variables with an equal impact on export and US 
prices do not affect the price basis, the implications of this fact in the present case relate to the 
specific context of the North American livestock market. As noted in the original proceedings of 
these disputes, the market for livestock (and meat) of Canada, Mexico, and the United States is highly integrated, with different stages of livest ock and meat production often being performed in 
more than one country.
204 Moreover, the vast majority of Canadian and Mexican livestock exports 
is destined for the United States, although imports from Canada and Mexico account for only a small percentage of total livestock slaughter in the United States.
205 
5.52.  A consequence of this integrated market is that livestock producers will sell their livestock 
wherever they are able to realize the highest retu rn. In theory, such arbitrage conditions operate 
to establish a "law of one price", according to which a product is sold for the same price in all locations – when prices differ within the market, arbitrage operates to equalize the price difference 
between locations.
206  
5.53.  This is not to say that the markets of Canada, Mexico, and the United States are perfectly 
integrated. Indeed, the fact that there is a price differential between products of different origin 
indicates that there are certain factors leading to  a departure from the theoretical "law of one 
price". The statistical volatility of the price basi s observed by the United States does not itself 
contradict the notion that North American livestock markets are highly integrated. Rather, fluctuation in the price basis over time is consistent with the premise that there are certain factors 
differentially impacting livestock prices, and that market frictions may impede instantaneous 
adjustment to economic changes.
207 At the same time, there is evidence that North American 
prices generally move together along the same trends, notwithstanding the existence of a 
differential between prices of livestock from different origins.208 For instance, the correlation 
between the US price and Canadian export price of  livestock is extremely high and ranges between 
0.95 and 0.98 for feeder/fed cattle, and is 0.98 for hogs.209 Similarly, the correlation between the 
US price and Mexican export price of feeder cattle is characterized by a high correlation of 0.98.210 
                                               
204 See Panel Reports, US – COOL , para. 7.140. See e.g., F. Adcock et al., "The Global Competitiveness 
of the North American Livestock Industry", Choices , Vol 21(3) (2006), (Exhibit MEX-32), pp. 171-176; R. 
Clemens, "Integration in the North Amer ican Livestock and Meat Industries", Iowa Ag Review , Vol. 9 (Summer 
2003), (Exhibit MEX-33), pp. 8-9; W. Hahn et al., "Marke t Integration of the North American Animal Products 
Complex", Report from the Economic Research Service (USDA) , LDP-M-131-01 (May 2005), (Exhibit MEX-34); 
and R. Jurenas, "Country-of-Origin-Labeling for Foods", Congressional Research Service , (15 July 2010), 
(Exhibit MEX-35).  
205 See Panel Reports, US – COOL , para. 7.142; parties' responses to Arbitrator question No. 31. 
206 More specifically, "[a]rbitrage implies that profit-seeking traders will ship the commodity from a low-
price exporting region to a high-price imported re gion if the price difference exceeds the marginal 
transportation and handling costs". J. Vercammen, Agricultural Marketing: Struct ural Models for Price Analysis  
(Routledge, 2011), (Exhibit MEX-31), p. 15. With specif ic regard to Canadian livestock, see US and Canada 
Weekly Hog Prices, (Exhibit CAN-89) and US and Canada Weekly Cattle Prices, (Exhibit CAN-91) reflecting the 
parallel movements in prices of Cana dian and US cattle and hogs. For such  Canadian livestock, this process is 
described as follows:  
As long as trade in meat and livestock is relative ly free and open, Canadian pricing is going to be 
determined at the macro level through global and U.S. markets. If Canadian prices move either too high or too low relative to the U.S. or other markets, supplies will either move into or out of 
Canada, rapidly. This rapid moveme nt of livestock or meat supplies due to price differentials will 
effectively erase those differentials.
 K. Grier, "Livestock Price Discovery In Canada", (George 
Morris Centre, October 2010), (Exhibit CAN-86), p. 2. 
See also Agricultural Marketing Guide: Alberta Agricult ure and Forestry, "Economics and Marketing: Predicting 
Feeder Cattle Prices", (Exhibit CAN-90).  
207 The compliance panel in these disputes noted that "it is not possible to fully appreciate the 
implications of the volatility of the price basis by simply looking at its evolution over time. Failing to consider the set of factors underlying the evolution of the price basi s could in fact lead to misleading inferences." Panel 
Reports, US – COOL (Article 21.5 – Canada and Mexico) , para. 7.172. 
208 See US and Canada Weekly Hog Prices, (Exhibit CAN-89) and US and Canada  Weekly Cattle Prices, 
(Exhibit CAN-91); Mexico's methodology paper, Pouliot Study, p. 12 (figure 3). 
209 See Weekly Cattle Data used for regressions with  variables, (Exhibit CAN-68) and Weekly Hog Data 
used for regressions with variables, (E xhibit CAN-69). The correlation of feeder/fed cattle prices is computed 
for the period September 2005 – January 2015, while the correlation of fed hog prices is computed for the WT/DS384/ARB ● WT/DS386/ARB 
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  5.54.  It is in this light that examination of changes in the price basis becomes relevant to 
assessing the impact of factors such as the COOL measure. In particular, price basis represents 
the price gap between livestock in the United States and comparable animals from Canada or Mexico that is due to trade costs, including transp ort costs and technical barriers to trade. For this 
reason, price basis analysis is a standard way of measuring trade costs caused by non-tariff 
measures.
211 In addition, the key methodological advantage of focusing on price basis is to restrict 
the set of relevant variables to those that, like the COOL measure, have a differential impact on 
livestock prices. 
5.55.  We turn to the second consideration regarding use of price basis to estimate the impact of 
the COOL measure on export prices, namely the conditions under which price basis analysis would yield an accurate measure of the change in export price. To accurately measure the negative COOL  
impact on exports, we agree with the United St ates that the parameter estimates of the COOL 
measure should not capture any increase in US prices caused by the COOL measure. Any such increase would attribute a widening of the price basis to the COOL measure in calculating export 
revenue losses, even though this would not actually correspond to (and in fact would overstate) 
the negative impact on export prices. In this regard, we agree with the United States' assertion that, "[i]n principle, any change in the U.S. price will result in a change in the price basis unless it 
is exactly offset by a change in th e Canadian or Mexican export price."
212 
5.56.  In this case, however, as we explain below, we do not find convincing evidence that the 
COOL measure led to increased US livestock prices. Therefore, we do not accept the United States' 
contention that price basis regression overestimate s the reduction in export prices caused by the 
COOL measure. We note the United States' explanation that the COOL measure increased the price 
of United States' livestock based on the economic logic that "[t]he increased costs associated with the original and amended COOL measure result in  decreased U.S. demand, as well as decreased 
Canadian and Mexican exports of livestock to the United States. This in turn results in an increase 
in the U.S. price of livestock."
213 We find it useful to examine these contentions in the context of 
the findings adopted in previous stages of these disputes relating to the discriminatory impact of 
the COOL measure.  
5.57.  With regard to the COOL impact on US demand, we recall the findings in the original and 
compliance stages regarding how the costs of the COOL measure are borne in the US market. The panels in both the original and compliance stages of these disputes found that the costs of the 
COOL measure could not be fully passed on to consumers, largely based on the USDA's own 
assessments that there was little evidence of consumer willingness to bear price increases 
commensurate with the added costs of mandatory labelling.
214 The additional costs imposed by the 
COOL measure were thus largely passed up the supply chain to producers, for whom the least 
costly business scenario was to process meat from exclusively domestic livestock.215 Given this 
incentive to use exclusively US-origin livestock, we see evidence for a "decreased US demand" for 
Canadian and Mexican imported livestock that would be reflected in a widened price basis caused 
                                                                                                                                               
period December 2003 – January 2015. Both computations transform Canadian prices to USD for purposes of 
comparison. 
210 See Weekly Texas and New Mexico Feeder Cattle Prices, (Exhibit MEX-2, Appendix 1) and Price of 
Mexican Feeder Cattle Exported to the United States, (E xhibit MEX-2, Appendix 2). The correlation of feeder 
cattle prices is computed for the period January 2003-December 2014. 
211 See, e.g. UNCTAD-WTO, "A practical guide to  trade policy analysis", p. 73 available at 
https://www.wto.org/englis h/res_e/publications_e/p ractical_guide12_e.htm , or WTO World Trade Report 2012, 
p. 137. 
212 United States' response to Arbitr ator question No. 33, para. 7.  
213 United States' response to Arbitr ator question No. 32, para. 2.  
214 See Panel Reports, US – COOL , paras. 7.352-7.356; US – COOL (Article 21.5 – Canada and Mexico) , 
paras. 7.159-7.162. See also 2009 Final Rule, pp. 2682 ("Current evidence does not suggest that United States producers will receive sufficiently high er prices for United States-labeled products to cover the labelling, 
recordkeeping, and other related costs.") and 2690 (indicating "the assumption that COOL will not change consumers' preferences for the covered commodities" and that "the suppliers of the covered commodities will 
still bear direct implementation costs"); USDA Office of the Chief Economist, Report to Congress, "Economic 
Analysis of Country of Origin Labeling (COOL)" (April 2015), (Exhibit MEX-2, Appendix 15), p. 8 ("while there is evidence indicating consumer interest  in COOL information, the evidence does not support a conclusion that 
COOL significantly increases consumer demand even th ough consumers desiring such information benefit from 
its provision"). 
215 See Panel Reports, US – COOL , para. 7.357; US – COOL (Article 21.5 – Canada and Mexico) , para. 
7.157. WT/DS384/ARB ● WT/DS386/ARB 
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  by the COOL measure.216 In light of this, it is not clear that  the "decreased US demand" referred to 
by the United States in these proceedings would bi as an interpretation of a widened price basis as 
a decrease in the export price of livestock.    
5.58.  The United States further suggested at the meeting with the Arbitrator that added 
regulatory compliance costs associated with the CO OL measure could be expected to lead to price 
increases for US livestock. In the case of the COOL  measure, we understand such costs to refer to 
modifications of production facilities, labelling capa cities, and other fixed costs, as outlined in the 
regulatory impact analysis of the 2009 Final Rule.217 Even assuming that it were shown that such 
costs increased the price of livestock, we note that costs of this nature would be non-discriminatory in that they would be incurred (and potentially passed upstream to livestock producers) independently of the particular origin of the livestock used.
218 In a price basis analysis, 
such non-discriminatory costs would not necessarily have any impact on the price basis and, thus, 
would not result in any overestimation of the C OOL measure's negative impact on export prices. 
5.59.  With regard to the effect of decreased Canadian and Mexican exports of livestock to the 
United States, we recall that an important feature of the North American livestock market is the 
r e l a t i v e  s i z e  o f  U S  p r o d u c t i o n  a n d  d e m a n d  i n  relation to the livestock exports of Canada and 
Mexico.219 It is uncontested in these proceedings that the share of livestock imports within the US 
market remains small and within the ranges reported in earlier phases of these disputes.220 For 
example, the total US livestock slaughter in the baseline year of 2014 was 30.859 million head of cattle.
221 In the same year, imports of Canadian feed er and fed cattle comprised approximately 3 
per cent of total US cattle slaughter222, and Mexican feeder cattle comprised approximately 4 per 
cent of total US cattle slaughter.223 Imports of Canadian feeder pigs and fed hogs comprised 
approximately 5 per cent of the total US slaughter of 106.879 million head of hogs.224 The small 
share of Canadian and Mexican imports compared to total US slaughter is consistent with the 
premise that "[t]he dominant factors in the US market are conditions that surround livestock of US 
origin".225 The small import share is also consistent with nearly perfect import demand elasticities 
within the United States226, with the result that exporters of livestock to the United States are 
"price-takers" according to US import demand. It fo llows from high import demand elasticities that 
                                               
216 This was evidenced by exporters of livestock to th e United States being requ ired to bear differential 
costs by accepting discounts or discontinued processing by US firms seeking to co mply with the segregation 
and verification requirements of th e COOL measure. See Panel Reports, US – COOL , paras. 7.373-7.381; 
Appellate Body Reports, US – COOL , para. 289. 
217 See 2009 Final Rule, pp. 2684-2685 (referring to rele vant "cost drivers" as including "individual 
package labels or other point-of-sale materials", "additional retail labor and personnel training", "[m]odification of existing recordkeeping systems", and the need for pack ers and processors "to separa te shifts for processing 
products from different origins, or to split processing within shifts, or to alter labels"). See also 2013 Final Rule, 
pp. 31378 and 31382 (referring to "two primary cost drivers" from the amended COOL measure as 
augmentation of the label and adjustme nt to the elimination of commingling, with "initial adjustment costs … 
expected to fall over time"). 
218 Notably, the 2009 Final Rule regulatory impact analysis assumed that "domestic and foreign 
suppliers of the covered commodities located at the same  level or segment of the supply chain face the same 
percentage increases in their operating costs".  See 2009 Final Rule, p. 2690. 
219 The original panel in these disputes observed in relation to the small share of imports that "US 
livestock demand cannot be fulfilled with exclusively foreign livestock" in reaching its conclusion that there was an incentive to process exclusively domestic livestock. Panel Reports, US – COOL , para. 7.349. See also 
Appellate Body Reports, US – COOL , paras. 287 and 345.   
220 See parties' responses to Arbitrat or question No. 31; Panel Reports, US – COOL (Article 21.5 – 
Canada and Mexico) , para. 7.157. 
221 See Market Share Data, (Exhibit USA-51), tabs 1 and 2 (providing data from the USDA National 
Agricultural Statis tics Service).  
222 Canada's response to Arbitrator question No. 31, para. 88; Market Share Data, (Exhibit USA-51), 
tab 2. 
223 Market Share Data, (Exhibit USA- 51), tab 1. We note that Mexico calculates 9.25 per cent as the 
import share of "total placement of feeder cattle" using the National Feeder & Stocker Cattle Receipts 
worksheets from the Livestock Marketin g Information Center . Mexico's response to Ar bitrator question No. 31, 
para. 87 and Import share of Mexica n feeder cattle, (Exhibit MEX-23). 
224 Canada's response to Arbitrator question No. 31, para. 91; Market Share Data, (Exhibit USA-51), 
tab 3. 
225 S. Pouliot and D. Sumner, "Differential impacts of country of origin labelling: COOL econometric 
evidence from cattle markets", Food Policy , Vol. 49 (2014), (Exhibit USA-35), p. 109. 
226 S. Pouliot and D. Sumner, "Differential impacts of country of origin labelling: COOL econometric 
evidence from cattle markets", Food Policy , Vol. 49 (2014), (Exhibit USA-35), p. 110. WT/DS384/ARB ● WT/DS386/ARB 
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  any decrease in import quantities would result only in a very small (if any) increase in the prices 
set according to conditions within the US market.227  
5.60.  Thus, while it is theoretically possible that a trade-restrictive measure could lead to higher 
prices in the importing country in addition to lower prices in the exporting country, we do not find 
compelling evidence that this has been the case with respect to the COOL measure in the US 
livestock market. Indeed, we note that there are indications that the COOL measure may have even led to decreased livestock prices within th e United States. In a study on the changes in 
economic welfare of US consumers, producers,  processors, and retailers resulting from the 
implementation of the (original and amended) COOL  measure, the results of a multiple-sector EDM 
for beef, pork, and poultry sectors conclude that the COOL measure reduced  the US price of feeder 
cattle, as well as slaughter (fed) cattle and hogs.
228 
5.61.  Finally, we note the parties' agreement that  there are a series of statistical problems that 
arise in attempting to econometrically estimate the impact of the COOL measure on actual prices.
229 Canada and Mexico explain that such a specification would require inclusion of a large 
number of explanatory variables, for many of which data are not available.230 Additionally, they 
acknowledge that such a specification faces certain statistical issues. In particular, they submit that some explanatory variables suffer from unit root problems (i.e. they are non-stationary)
231 or 
may be endogenous variables (i.e. those that are themselves impacted by the dependent 
variable).232 In light of this, our conclusion is not altered by the fact that specifications using 
absolute prices indicate that the COOL measure increased US prices. The United States characterizes as "mis-specified" the very same price model it uses to yield such results.
233 The 
upward trend of livestock prices underscores the need for a methodology that is capable of 
isolating the negative effect of the COOL measures amidst the multiplicity of factors that may have 
contributed to overall price increases. As demonstr ated by the United States itself, an econometric 
analysis of absolute price levels is inadequate for this purpose.  
5.62.  In sum, we consider that the COOL measure's impact on the price basis is an appropriate 
measure of its impact on Canadian and Mexican export prices. We note that the object of 
Article 22.6 proceedings is to ascertain the level of nullification or impairment, and Canada's and 
Mexico's use of price basis is suitable for this purpose under the specific circumstances of this case. The COOL measure is a factor that, as found in prior stages of these disputes, differentially 
impacts the competitive opportunities (and prices) of livestock from different origins as compared 
                                               
227 See, e.g. Canada's comments on the United States' response to Arbitrator qu estion No. 32, paras. 4-
7; Mexico's written submission, para. 48. 
228 See USDA Office of the Chief Econ omist, Report to Congress, "Economi c Analysis of Country of Origin 
Labeling (COOL)" (April 2015), (Exhibit MEX-2, Appendix 15), p. 10 and Table 3 (showing a long term 
reduction  in the prices of feeder and fed cattle, and fed ho gs, in contrast to the results of the 2009 Final Rule 
regulatory impact analysis). See also Tonsor et al. (2015), pp. 57, 59-60, 67-68, Table exhibit 5.1, and Table exhibit 6.1. See also Canada's comments on the United St ates' response to Arbitrator question No. 32, para. 8. 
229 United States' written submission (Canada), para . 104; United States' written submission (Mexico); 
para. 75; Canada's response to Arbitrat or question No. 34, para. 98 ("[I]t is not possible to reliably estimate 
the impact of the amended COOL measure on the export price of Canadian cattle and hogs without estimating the specification with the price basis as the dependant vari able."); Mexico's response to Arbitrator question No. 
5(c), para. 17 ("It would not be possib le to estimate Mexico’s lost export  exports revenues by specifying a 
model with the actual export pric e as the dependent variable."). 
230 United States' written submission (Canada), para . 104; United States' written submission (Mexico); 
para. 75; Canada's response to Arbitrator question No. 34, para. 102; Mexico's response to Arbitrator question 
No. 5(c), para. 19.  
231 Canada's response to Arbitrator question No. 34, para. 104; Mexico's response to Arbitrator question 
No. 5(c), paras. 25-26. The concept of un it root refers to the no n-stationarity property of a given variable that 
can alter the consistency of the parameters' estimati on. Standard statistical inference assumes that the 
dependent and independent variables included in a linear regression model are stationary in order to obtain consistent estimates (i.e. estimates that converge to the true values as the number of observations increases). 
In the presence of explanatory variable(s) with a unit root, their respective estimates have been shown to be biased when the dependent variable is stationary. When the dependent va riable and the expl anatory variable 
are both characterized by a unit ro ot, the estimated parameter is not biased only if both variables are 
characterized by a long-run equ ilibrium relationship, known as cointegration. Greene, W.H. Econometric 
Analysis , 4th edn (Prentice Hall, 2000). 
232 See Canada's response to Arbitrator question No. 34, para. 103 ("Including the U.S. price as an 
explanatory variable creates bias in  the regression model because it is endogenous: many of the same 
influences that affect the Canadian pr ice also affect the U.S. price.").  
233 United States' response to Arbi trator question No. 32, para. 5. WT/DS384/ARB ● WT/DS386/ARB 
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  to domestic livestock. A price basis regression effectively controls for other factors that would have 
had the same effect on North American livestock pr ices, and is therefore apt to identify and isolate 
the impact of the COOL measure. In the next sect ion, we discuss the application of this logic to 
specific variables and the rationale for their inclusion or omission in a price basis model. 
5.2.1.2  Variable omission 
5.2.1.2.1  Arguments of the parties 5.63.  Canada and Mexico each control for a limited set of variables in their respective model 
specifications for the estimation of the impact on price basis.  
5.64.  The United States argues that both Canada's and Mexico's model specifications suffer from 
variable omission by failing to include a number of factors affecting the North American livestock and meat markets during the time-period reviewed.
234 According to the United States, the 
estimations of the impact of the original and amended COOL measure account not only for the 
original and amended COOL measure's own effects but also capture some impacts of the missing 
variables.235 The United States submits that "it is important to ensure that, in determining the 
level of nullification or impairment, trade effects attributable to a factor other than the measure at 
issue are not attributed to the measure at issue since that would result in an erroneous level of nullification or impairment."
236 
5.65.  The United States thus contends that the econometric analysis presented is "insufficient to 
isolate the effects of the amended COOL measure"  and that, "[t]o be robust, this methodology 
must systematically account for all relevant supply and demand shifters".237 The United States lists 
a number of independent variables that should be controlled for, which "include, but are not 
limited to": economic fluctuations and recession ; long-term unemployment; increased feed costs; 
shifts in Canadian and Mexican livestock and meat processing; shifting transportation costs; weather patterns and drought; impacts of an imal disease such as bovine spongiform 
encephalopathy (BSE) in the Canadian herd; and increased demand for meat during US 
holidays.
238 
5.66.  Canada and Mexico both reject the United States' contention regarding variable omission, 
arguing that their specifications include all the relevant exogenous variables to measure the causal 
impact of the COOL measure on prices.239  
5.67.   Canada submits that the inclusion of variables in the model should be based on objective 
criteria, namely: (1) economic reasons to believe the variables have a causal impact; (2) the 
variables must be "clearly exogenous"; and (3) the variables must not be "temporally correlated 
with the dependent variable in some non-causal or random way to avoid biasing impacts of other variables."
240 Additionally, Canada contests the need to include variables that do not differentially 
impact livestock prices and for which excluding the variable from the model does not lead to 
systematic bias in the estimates of interest, i.e. the impact of the COOL measure.241 
5.68.  Mexico notes that "only exogenous variables that have a causal impact should be included 
as explanatory variables … [that] there will be omitted variable bias only if the omitted variable is 
correlated with the variable of interest … [and that] the United States has failed to explain why any of the 'omitted variables' it has identified … would have a differential impact on the price of imported Mexican cattle."
242 Furthermore, Mexico argues that their "Methodology Paper uses a 
                                               
234 United States' written submission (Mexico), paras. 69-71; United States' written submission 
(Canada), paras. 96-99. 
235 United States' written submission (Mexico), paras. 69-71; United States' written submission 
(Canada), paras. 96-99. 
236 United States' opening statement at the meeting of the Arbitrator, para. 28.  
237 United States' opening statement at the meeting of the Arbitrator, para. 54. 
238 United States' written submission (Mexico), para . 71; United States' written submission (Canada), 
para. 99. 
239 Canada's written submission, para. 37; Mexico's written submission, para. 15. 
240 Canada's written submission, para. 38.  
241 See Canada's written submission, paras. 40-49; Ca nada's response to Arbitrator question No. 35. 
242 Mexico's written su bmission, para. 16.  WT/DS384/ARB ● WT/DS386/ARB 
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  careful approach to include only the variables that are economically relevant in the regression 
models."243 Mexico points out that because they use the price of Mexican feeder cattle in New 
Mexico and Texas, and compare that to the pric e of United States' feeder cattle at the same 
locations, only a limited number of factors can explain any difference.244 
5.2.1.2.2  Analysis by the Arbitrator 
5.69.  In an econometric regression with price basis as the dependent variable, the relevant 
explanatory variables are those that affect the diff erence between export prices and US prices of 
livestock. In other words, only variables that have a differential  impact on livestock prices need to 
be controlled for and included in the model specification. As described above245, variables having 
an equal impact on export and US livestock prices will have no impact on the price basis, and therefore would not need to be included in the model.  
5.70.  In their respective methodology papers, Canada and Mexico have each controlled for certain 
variables in their model specifications. The control variables included by Canada and Mexico correspond to their differing definitions of price basis – while Canada compares the price of 
Canadian livestock in Canada with the price of US-origin livestock in the United States, Mexico 
compares the price within the United States of both Mexican-origin and US-origin livestock. To address the issue of variable omission, we briefly outline the price basis specifications used by 
Canada and Mexico to discuss the variables they have each controlled for in their proposed 
methodologies. We then turn to the question of additional relevant variables that the United States contends have been omitted.  
5.71.  Canada and Mexico use similarly specified equations to estimate the impact of the COOL 
measure on the price basis. Each price basis specification includes parameters representing the 
effects of the original and amended COOL measures. The price basis specifications also include a "lagged dependent variable" to measure the relationship between the price basis at a certain point 
in time t and the price basis in the previous period t-1 (i.e. the previous week for Canada and the 
previous month for Mexico). The goal of the eq uations is to estimate the magnitudes of the 
parameters for the original and amended COOL measures, as well as the lagged dependent 
variable, in order to calculate the change in price ( ∆P) in the determination of export revenue 
losses caused by the COOL measure.  
5.72.  This can be illustrated in the following equation used by Canada for its price basis 
specification
246: 
Pet - Pus t = α + βZt + γ1(DCOOL1) + γ2(DCOOL2) + δ(Pet-1 - Pus t-1) + vp t 
In this equation,  Pet represents the Canadian export price in period t, and Pust represents the price 
in the United States; the difference between these two prices ( Pet - Pus t) is the price basis as 
defined by Canada. Mexico uses a similarly specified equation with respect to its definition of price 
basis, namely the difference between prices of Me xican-origin and US-origin feeder cattle within 
the United States. Both Canada and Mexico assign parameters for the original and amended COOL 
measures. In the above equation, parameters γ1 and γ2 represent the effects of the variables for 
the original (DCOOL1) and amende d (DCOOL2) measures. Parameter  δ corresponds to the "lagged 
dependent variable" ( Pet-1 - Pus t-1), which reflects the tendency for causal factors to have impacts 
that linger for more than one period, and measures the degree to which impacts gradually 
dissipate over time. 
5.73.  The other parameters in the above price basis specification are intended to capture the 
impact of other explanatory variables with respect to price basis. Parameter α is the intercept of 
the equation, and the random error term vpt represents random events or drivers that have 
impacts on exports but that are not accounted for by, and are uncorrelated with, the included explanatory variables.
  
                                               
243 Mexico's written su bmission, para. 42.  
244 Mexico's written su bmission, para. 43.  
245 See para. 5.50 above. 
246 Canada's methodology paper, Sumner  Study, para. 74, equation (6). WT/DS384/ARB ● WT/DS386/ARB 
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  5.74.  The parameter vector β represents the effect of control variables in the set Zt on the prices. 
In Canada's price basis specification, this includes: (a) monthly dummy variables to represent 
seasonality in the variation of cattle and hog export prices; (b)  changes in the exchange rate 
between U.S. dollars and Canadian dollars; (c) dummy variables for two BSE-related events 
specific to Canadian cattle; and (d) a dummy variable for changes in hog processing capacity 
resulting from closure of a plant.247 In Mexico's price basis specification, this includes: (a) monthly 
dummy variables to represent seasonality in the va riation of cattle and hog export prices; and (b) 
a dummy variable for drought events.248  
5.75.  Both Canada and Mexico have thus controlled for certain variables in the benchmark 
specifications presented in their methodology papers. The United States contends that relevant explanatory variables have been omitted from thes e specifications, and that "all other relevant 
explanatory variables must be controlled for to isolate the impact of COOL on the dependent 
variable".
249  
5.76.  We agree that omission of a relevant explanatory variable could potentially bias the 
estimates of the COOL impact, specifically by erroneously attributing effects to the COOL measure 
that are actually caused by other factors.250 However, the determination of whether a relevant 
explanatory variable has been omitted turns on the specific nature of the dependent variable in 
relation to the allegedly omitted variables in question. 
5.77.  In this connection, the parties agree on certain general criteria for assessing whether a 
given variable should be included in econometric modelling.251 First, including the variable must be 
consistent with economic theory and logic in terms of that variable's impact on the dependent 
variable. In the absence of an economic rationale justifying inclusion of a variable, the omission of 
that variable does not amount to misspecification of the model. Second, the variable must satisfy various econometric conditions such as being exogenous in the sense that it is not itself caused or 
impacted by the dependent variable.
252 Other econometric conditions include correlation with other 
variables in the model, including other explanatory variables and the error term. Finally, a relevant consideration is the data that are available for a variable, and the extent to which a proxy variable 
may introduce measurement errors in the regression analysis.  
5.78.  We apply these general criteria to the price basis specifications of Canada and Mexico 
outlined above. As a threshold consideration of economic theory and logic, we recall that we have accepted the use of price basis as the dependent variable, which means that only variables that 
would be expected to have a differential  impact on prices should be included. The United States 
asserts relevant omitted variables include, but are not limited to, a wide variety of factors relating to the livestock production process, macroeconomic trends, market participants' behaviour, and 
animal disease.
253 While it is not contested that such factors could be important to an assessment 
of absolute export prices, the fundamental questi on is whether any given factor would affect the 
prices of Canadian and Mexican livestock differently from those of US livestock. 
                                               
247 See Canada's methodology paper, Sumner Study, paras. 67, 69, and 74-85. 
248 See Mexico's methodology paper, Pouliot Stud y, pp. 14-16, equation (4); Mexico's written 
submission, para. 43(d). We note that Mexico's price basis specification, while using slightly different annotations for parameters , is structured similarly to that of Canada. 
249 United States' response to Arbitrator qu estion No. 6, para. 39. (emphasis original) 
250 See Panel Reports, US – COOL (Article 21.5 – Canada and Mexico) , para. 7.184. 
251 Canada's written submission, para. 38; Mexico's response to Arbitrator question No. 6. We note that 
the United States submits a list of criteria which it co nsiders to be "more extensive than that provided by 
Canada", with considerations addition al to those argued by Canada and Mexico. United States' response to 
Arbitrator question No. 6, para. 40. Although not iden tical, we see substantial overlap between the criteria 
submitted by the United States and those that we apply in our analysis. The full list of criteria submitted by the United States is as follows:  
All predictions made from the model must be logi cally possible; the mode l must be consistent 
with economic theory; explanatory variables must  be exogenous or uncorrelated with the error 
term; parameter values must be stable otherw ise predictions will be unreliable; residuals 
estimated from the model must be random; and the model should consider all rival models, that is, other models cannot be an improvement over the chosen model. (United States' response to 
Arbitrator question No. 6, para. 40 (footnotes omitted)) 
252 Inclusion of an endogenous  variable, i.e. a variable that is itself  affected by the livestock price basis, 
would lead to inconsistent and/or biased estimation. 
253 See United States' opening statement at the meeting of the Arbitrator, para. 53 and Sample 
Economic Revisions to Canada's Feeder Cattle Quantity Estimates, (Exhibit USA-53), p. 9. WT/DS384/ARB ● WT/DS386/ARB 
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  5.79.  We recall that the products under considerations are "like products" in the sense that they 
are distinguished solely on the basis of their origin, rather than any of the well-established criteria 
for likeness.254 Given the integrated nature of the North American livestock market and the 
arbitrage conditions equalizing price differences, the key variables of relevance to our analysis are 
those representing trade barriers and differential transaction costs (such as transport costs). Other 
than the impact of such variables on the price ba sis, the market conditions in which the products 
in question are traded suggest that products dist inguished only by origin would otherwise sell for 
the same price in the same place. In our view, therefore, the price basis specification does not 
need to include all potential supply and demand shifters within the relevant markets, as contended by the United States, but only those that account for trade barriers and transaction costs. 
5.80.  We note that the logic of "differential transaction costs" applies differently to the price basis 
specifications of Canada and Mexico due to the different ways in which they have defined price 
basis. In Mexico's case, the price basis is a comparison of prices of Mexican and US-origin livestock in the same place, i.e. within the United States.
255 As explained by Mexico, "[t]he price paid to 
Mexican producers is slightly lower than the price paid for Mexican feeder cattle in the United 
States because of transaction costs (including transportation)".256 Transaction costs stemming 
from transportation and exchange rates "have alre ady been incurred" at the time of sale in the 
United States, and "the price of Mexican feeder cattle is determined solely by the valuation for 
feeder cattle by U.S. buyers".257  
5.81.  This is distinct from the comparison made by Canada between livestock prices in Canada 
and in the United States. The price of livestock within Canada does not similarly reflect additional 
costs associated with transport to the United States and exchange rates between Canada and the 
United States. We note that Canada has controlled for changes in the exchange rate to account for the fact that "short term movements in the exchange rate may affect prices" at which exported 
livestock are sold.
258 However, Canada has not controlled for transportation costs of exporting 
cattle to the United States. Such costs are a basic factor of trade costs that could account for a difference between the price of products that are identical apart from origin.
259 Accordingly, we 
consider that such transport costs should be controlled for in a price basis regression in which price 
basis is defined in the manner proposed by Canada.260 
5.82.  Apart from the inclusion of transport costs in Canada's price basis specification, we accept 
the explanatory variables that Canada and Mexico have each controlled for in their respective 
models. With regard to additional variables that the United States contends have been omitted, we 
decided to focus on a limited number of variables, based on the criteria above, that may have impacted the price basis, namely: (a) economic recession; (b) other competing imports from 
Canada and Mexico; (c) feed costs; and (d) drought. It is not contested that these variables may 
have some differential impact on the supply and demand curves within  Canada, Mexico, and the 
United States. However, under full adjustment to arbitrage conditions in a highly integrated 
market in which exporters are price-takers, we do not consider that these variables would affect 
the price gap between imported and domestic produc ts in the US market. For example, despite the 
                                               
254 See Panel Reports, US – COOL , para. 7.253. 
255 We note that these prices are drawn from the same data source, as discussed in section 5.2.3 below. 
256 Mexican methodology paper, Poul iot Study, p.18, footnote 6. 
257 Mexico's written su bmission, para. 43(a). 
258 Canada's methodology paper,  Sumner Study, para. 71. 
259 This is illustrated in the following equation wherein Pcc is the price of Canadian animals in Canada, 
Puu is the price of US animals in the United States, and Pcu is the price of Canadian animals at their US 
destination: ( Pcu – Puu ) = (Pcc – Puu ) + (Pcu – Pcc). In this equation, ( Pcu – Puu ) represents a price basis 
comparing prices in the same location; ( Pcc – Puu ) represents the price basis as defined by Canada; and ( Pcu 
– Pcc) represents the additional transportation costs that are part of the price basis comparing prices within 
the United States. See Canada's response to Arbitrator  question No. 6, paras. 21 -23 (providing a different 
arrangement of this equation). 
260 Canada acknowledges that "[c]hanges in differentia l transport costs might be a factor in trade, but 
those differentials are small because the United States is such a geographically large country and cattle and hogs are shipped many miles and from state to state with in the United States". Canada's written submission, 
para. 44. Although this assertion has no t been concretely substantiated in this arbitration, we do not consider 
that it obviates the theoretical grounds for including tr ansport costs in Canada's price basis specification. To 
the extent that transport costs represent a small share of livestock prices, or that they are comparable for 
animals of different origins, this is something that would be subject to empirical evaluation through econometric analysis.  WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  different timing and severity of economic recession in the United States261, the price basis would 
theoretically remain unchanged if arbitrage occurred without frictions. Likewise, factors impacting 
the supply of livestock from Canada and Mexico would be of limited relevance to a price basis analysis where prices are set according to conditions within the US market, and where arbitrage by 
producers and buyers operates to equalize temporary price differences.   
5.83.  Nevertheless, adjustments to price levels through arbitrage are not instantaneous, and time 
lags in the adjustment process can theoretically account for temporary changes in the price basis. 
In order to control for these impacts, we have reviewed empirical evidence on the implications of 
including the above variables in the price basis specifications of Canada and Mexico, particularly the extensive material provided by the partie s in response to written questions from the 
Arbitrator.
262 This includes the results of regressions including these variables separately and all 
together in a single specification, with results from different proxies for each variable, namely: 
(a) dummy variables and unemployment rates for economic recession; (b) data on other competing imports from Canada and Mexico; (c) corn and barley prices as well as future prices for 
feed costs; and (d) drought monitor reports as well as a dummy variable for drought.  
5.84.  We examined the results of including these variables in levels and in first differences (i.e. 
the difference between the value of a variable at a given time t and the preceding time t-1). The 
reason for including certain variables in first differences was to capture the fact that the change in 
such variables (e.g. proxies for recession) is the shock that is the relevant potential impact on price basis, rather than the level of such variables. In addition, running the regression with certain variables in first differences corrected for unit roots.  
5.85.  Based on our review, we do not find compel ling empirical evidence for the inclusion of the 
additional variables in the price basis specifications of Canada and Mexico. These variables (and respective proxies), either included separately or all together, are not always and consistently 
statistically significant in any discernible pattern across the different animal categories (i.e. 
fed/feeder cattle/hogs) when either a 5 or 10 per cent significance level is used as the criterion for the level of significance.
263 Thus, there is no consistent empirical evidence that any of the variables 
examined, or all of them together, is an explanat ory factor that should be included in the price 
basis specification. Furthermore, we note that the estimations of the impact of the COOL measure on the price basis are robust to inclusion of these additional variables that the United States argues have been omitted. In other words, the COOL measure parameters, which are the primary 
interest of this analysis, remain consistent and statistically significant even when these additional 
variables are included. 
5.86.  Accordingly, we consider that Canada's proposed price basis specification omits transport 
costs, while Mexico's price basis specification does not suffer from omission of this variable. As 
regards other variables discussed in this section, we do not find conclusive evidence that they need to be included in a price basis estimation. However, to the extent statistically significant 
estimates of such variables (though inconsistent across animal categories, the proxy used, and 
whether estimated in levels or first differences) confirm the fact that adjustment lags and market frictions may lead to such variables affecting the price basis, we reserve consideration of such variables for the purposes of checking the robustness of our own determination of the COOL 
measure's impact on export prices.  
5.2.1.3  Price impact on Canadian feeder pigs 5.2.1.3.1  Arguments of the parties 
5.87.  As described above in section 3.1, Canada does not use regression analysis to estimate the 
price impact on feeder pigs. Canada explains that "it was not possible to estimate these impacts 
                                               
261 See S. Pouliot and D. Sumner, "Differential impacts of country of origin labelling: COOL econometric 
evidence from cattle markets", Food Policy , Vol. 49 (2014), (Exhibit USA-35), p. 111. 
262 See parties' responses to Arbitrator question No. 35.  
263 A given variable is usually said to be statistically significant when there is at most a 5 per cent 
probability that the value of the estimated coefficient is  due to chance or random error. Put differently, this 
refers to when there is at least a 95 pe r cent probability that the value of the coefficient variable in question is 
different from zero. See Panel Reports, US – COOL , para. 7.510;  US – COOL (Article 21.5 – Canada and 
Mexico) , para. 7.185; R.A. Fisher, Statistical Methods for Research Workers , 1st edn (Oliver & Boyd, 1925). WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  statistically" because "no consistent time series of price data amenable for statistical analysis is 
available for feeder pigs in Canada."264 Canada relies instead on a descriptive comparative analysis 
of price information based on [[ BCI]] invoices provided by a Canadian firm trading in feeder pigs 
on either side of the border.265 Canada also relies on witness statements submitted by the 
president of that firm. In the witness statements, it is stated that the firm controls [[ BCI]] per 
cent of the export market of feeder pigs to the United States.266    
5.88.  Canada pairs the invoices into [[ BCI]] pairs of transactions, each pair including a cross-
border (Canada-US) and an intra-US (US-US) transaction to allow for comparison.267 The invoices 
cover weanlings (i.e. baby pigs weighing less than 7kg) and larger feeder pigs.268 They relate to a 
period between July 2012 and early 2015, thus comparing the price difference between US and Canadian feeder pigs before and after the en try into force of the amended COOL measure.
269 The 
discount effect established on the basis of this co mparison is then added to the discount effect of 
the original COOL measure, which is derived from witness statements, to form a total discount suffered as a result of the COOL measure.
270 The respective average discounts for the two weight 
categories (i.e. weanlings and larger feeder pigs) are weighted by 70 and 30 percent, 
representing, according to the witness statement, Canada's respective export shares for weanlings and larger feeder pigs.  
5.89.  The United States notes that the data are taken from a single firm in the Canadian market, 
which provided only a limited set of invoices.
271 The United States further notes that the 
information from the invoices does not indicate (i) the location of the purchasers, (ii) the size of the pigs, or (iii) the volume of pigs sold per transaction.
272 The United States argues that "there is 
no way to tell if volume discounts, transportation costs, or different product specifications play a 
role in the alleged price basis."273 According to the United States, it is also likely that the firm 
submitting such data participated in more tran sactions than evidenced by the limited number of 
invoices submitted, and any long-term trend should be discerned from the entirety of transactions 
rather than a small sample.274 The United States takes the view that Canada should have 
submitted the entire sales files of the firm in question275, and further submits that Canada should 
have submitted sales files from more than one "large" feeder pig provider.276 The United States 
also suggests that a consistent time series of monthly data is available in the form of Agriculture 
and Agri-Food Canada reports as we ll as US Census Bureau data.277 
5.90.  Regarding the reliability and representativeness of the invoice data, Canada notes that the 
evidence submitted is consistent with the price trends determined through data for the other three 
categories of livestock.278 Additionally, Canada states that the [[ BCI]] paired transactions were 
chosen "to ensure that the invoices represented average volumes and average transportation 
costs."279 Canada further notes that witness statement submitted is a sworn statement.280 Canada 
submits that it has used the "best available information", for its calculations of price impact on feeder pigs, and that a lack of government data  should not deny Canada losses for the drop in 
                                               
264 Canada's methodology paper,  Sumner Study, para. 99. 
265 Exhibit CAN-7 (BCI). 
266 Exhibit CAN-7 (BCI), p. 1. 
267 Exhibit CAN-7 (BCI). See al so Exhibit CAN-95 (BCI).  
268 Exhibit CAN-7 (BCI). 
269 Exhibit CAN-7 (BCI). 
270 Canada's methodology paper, Sumner Study, para s. 105 and 108 (referring to witness statement of 
[[BCI]], Exhibit CAN-7 (BCI)). In this witness statement, [[ BCI]] refers to witness statements previously 
submitted in the compliance proceedings of these disputes, including his own dated October 2013. Canada re-submits these witness statements in these proceedings as Exhibit CAN-8 through Exhibit CAN-19 (all BCI). 
271 United States' written submission (Canada), para. 112. 
272 United States' written submission (Canada), para. 112. 
273 United States' written submission (Canada), para. 112. 
274 United States' written submissi on (Canada), paras. 112-113.  
275 United States' comments on Canada's respon se to Arbitrator question No. 52, para. 89. 
276 United States' comments on Canada's response  to Arbitrator question No. 52, para. 89.   
277 United States' response to Arbi trator question No. 21, para. 76. 
278 Canada's written submission, para. 56. 
279 Canada's response to Arbitrator question No. 19,  para. 51 (citing Exhibit CAN-52 (BCI), para. 4). 
280 Canada's written submission, pa ra. 55. At the substa ntive meeting with the Arbitrator, Canada 
explained that the witness statement had been submitte d under oath in order to address concerns regarding 
the representativeness and accuracy of the information attested to.  WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  feeder pig prices resulting from the COOL measure.281 Following a question from the Arbitrator, 
Canada confirms that it does not have access to transactional information via other governmental 
sources.282  
5.2.1.3.2  Analysis by the Arbitrator 
5.91.  We begin by observing that Canada is free to decide which approach to adopt in order to 
estimate the price impacts of the COOL measure on its trade in feeder pigs. In particular, the fact 
that it uses an econometric approach for all other price estimations does not mean that it has to 
do so for feeder pigs as well. The United States does not contest this, nor does the United States 
challenge the comparative analysis of invoices as an invalid approach per se .   
5.92.  What the United States challenges is the way in which the comparative analysis has been 
carried out, and in particular the representativeness and comparability of the data used. 
5.93.  We asked Canada for additional invoices and additional information on certain issues. We 
also asked Canada to econometrically estimate the price impact using available monthly data from the US Census Bureau or AMS in order to compare the outcome. We acknowledge that Canada has 
made every effort to fully answer our reques ts and questions within the short timeframes 
applicable in these proceedings. The replies of Canada, however, do not sufficiently address the 
concerns that the United States has raised, and indeed raise further questions about the data used 
to estimate the impact on the price of feeder pigs.     
5.94.  We have now a total of [[ BCI]] invoices submitted, which represents 3.2 per cent of the 
total number of [[ BCI]] transactions during the period of 2012 to 2015 (namely [[ BCI]]). We note 
the United States' view that Canada should have submitted all invoices of [[ BCI]] as well as 
invoices from other Canadian traders. Apart from the broader evidentiary issue this may raise, we 
see a number of factors that call into question the representativeness and comparability of the data actually submitted.   
5.95.  First, we note that no invoices on weanlings from the pre-amended COOL period seem to be 
available.
283 This raises questions given that (1) [[ BCI]]284 and (2) we are asked to rely on 
[[BCI]] witness statement regarding the applicable discount on weanlings during that same 
period. No further explanation has been provided in this regard.  
5.96.  Second, we note that there are significant differences in the level of discount (i.e. price 
differential) identified between the witness statement submitted in October 2013 and the first set of invoices and, again, between the first set of invoices and the additional invoices submitted at 
our request. The witness statement identified the average discount for larger feeder pigs for the 
amended COOL measure to be between USD 5 and USD 10.
285 The first set of invoices identifies 
the same discount as USD 10.88, whereas in the additional set of invoices, that discount increases 
to USD 14.97.286 In addition, the decline in discount be tween the original COOL measure and the 
amended COOL measure, as identified in the witness statement, is a median of USD 3.50.287 The 
same differential between the original COOL measure and the amended COOL measure is USD 
4.87 in the first set of invoices and USD 10.63 with the additional set of invoices (i.e. more than 
twice as large).288 With respect to weanlings, the av erage discount for the amended COOL 
measure goes from USD 9.18 in the first set of invoices to USD 10.78 in the additional set of invoices.
289 Canada submits that this demonstrates that the original invoice sample included is 
                                               
281 Canada's written submission, para. 56. 
282 Canada's response to Ar bitrator question No. 52. 
283 The table contained in Exhibit CAN-95 (BCI) states in respect of such invoices: "Not available from 
[[BCI]]." 
284 Exhibit CAN-7 (BCI), para. 4.  
285 Exhibit CAN-8 (BCI), para. 9; see also Canada 's methodology paper, Sumner Study, para. 108. 
286 Exhibit CAN-95 (BCI), table of invoice data. The ad ditional invoices increase the COOL discount by 
37.6 per cent.  
287 Canada's methodology paper,  Sumner Study, para. 108. 
288 Exhibit CAN-95 (BCI), table of invoice data. The ad ditional invoices increase the COOL discount by 
118.3 per cent.   
289 Exhibit CAN-95 (BCI), table  of invoice data. The additional invoices increase the COOL discount by 
17.4 per cent.  WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  conservative.290 In our view, however, these significant differences call into question the 
representativeness and reliability of the "discount" identified, in particular with respect to larger 
(non-weanling) feeder pigs.       
5.97.  Third, even assuming that the Canadian pr ices submitted are representative of the market 
price, we have doubts about the representativeness of the US prices in the invoices submitted by 
[[BCI] ] .  C a n a d a  s t a t e s  t h a t  n o  m o r e  t h a n  [ [ BCI]] per cent of [[ BCI]] transactions are US-US 
transactions. In other words, out of the total of [[ BCI]] transactions that [[ BCI]] carried out 
during the period of July 2012 to May 2015, only a maximum of [[ BCI]] transactions were US-US 
transactions. A sample comparison of US transaction prices indicated in the invoices with AMS monthly average rates of US prices for the same dates shows that the average invoice price of US 
feeder pigs is considerably higher. For example,  the greatest price differential in the invoices 
submitted is for September 2014. The US-US transaction for that month indicates an average rate 
for a 40lb pig of [[ BCI]]; the AMS monthly average rate for the same month is USD 80.8.
291 We 
note that the AMS price for September 2014 [[ BCI]].292 This shows that use of invoice data can 
lead to significantly greater price differentials than what is indicated by average monthly US prices 
reported by the AMS. In sum, we are not convinced that US prices submitted by [[ BCI]] are 
actually representative of the US market given their relatively high price volatility.      
5.98.  Fourth, the varying weight of feeder pigs is another reason to call into question the 
comparability of the price data submitted. In some of the paired invoices, the weight of the pigs differs substantially.
293 We understand that the price for feeder  pigs is calculated on the basis of 
weight and that a "rate" is applied that differs from the first 40lb to the next 20lb, and again to 
any additional weight over 60lb.294 In some paired invoices, the weight of the pigs differs between 
10 and 20kg. How that weight difference affects the final price, and thus the price differential, depends on the rate that is applied. In one paired sample submitted, the rate applied to Canadian 
and to US pigs differs by only [[ BCI]], whereas the average differential of the actual price paid 
shows [[ BCI]] for Canadian pigs. Based on our review of the evidence, we understand the reason 
for this differential to be that the Canadian pig is 13kg (about 26 per cent) heavier than its US 
counterpart and, therefore, is sold at a higher price. In another sample, the price rates differ by 
[[BCI]], but the price differential is only [[ BCI]]. Our understanding is that this is because the 
Canadian pig (sold at the cheaper rate) is 15kg (about 25  per cent) heavier, which increases its final price and therefore makes the price differential comparatively smaller. In sum, different 
weights have an impact on the price differential. Therefore, where weights differ significantly, it 
calls into question the comparability of the prices. This is particularly important because Canada considers that the price difference of comparable Ca nadian and US feeder pigs is entirely due to 
the COOL measure.  
5.99.  Finally, we note some lacunae in the invoices submitted. First, it was stated that no invoices 
were available for the month of January 2014
295, and therefore there are no data during one 
month in the time series. Furthermore, we note invo ice No. 71, as listed in the table, has not been 
submitted. Instead, we find an invoice to a different company with a price listed as [[ BCI]] per 
weanling instead of the [[ BCI]] listed in the table. These irregularities further call into question the 
statistical reliability of the invoices Canada submitted to estimate the impact of the COOL measure 
on feeder pig prices. 
5.100.  As noted above, we had asked Canada to submit an econometric estimation of the feeder 
pig price based on available monthly data. The purpose was to compare the result to the results of 
                                               
290 Canada's response to Arbitrator question No. 55.    
291 The AMS monthly average is taken from the database  submitted by Canada in  Exhibit CAN-82.    
292 Similarly, according to [[ BCI]], the US average rate for 40lb was [[ BCI]] in July 2014, while the 
AMS monthly average for the same month was USD 117.90; [[ BCI]] average rate for the month of August 
2014 was [[ BCI]], whereas the AMS average rate for the same month was USD 96.28. See Feeder Pigs 
Monthly Import Data, (Exhibit CAN-82).  
293 We note that weanlings are priced on a per head basis. The discussion above therefore only concerns 
non-weanling feeder pigs. However, we observe that one invoice submitted on weanlings also indicated a weight, namely that of [[ BCI]]. As this is not a weanling's weight (less than 7kg), it is not clear why this 
invoice was submitted as an example of  a weanling's price. Furthermore, it  is not clear whether the paired US-
US transaction (which does not indicate a weight) is for a pig of the same or similar weight. See table in Exhibit 
CAN-95 (BCI) table of invoice data  and attached invoice No. 78. 
294 See also Exhibit CAN-95 (BCI), table  of invoice data, footnote 3. 
295 Exhibit CAN-95 (BCI), table  of invoice data. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  the comparative analysis of the invoices to get a sense of how far apart these two approaches are. 
However, we are unable to compare the two results because the two approaches rely on data for 
different weight categories. While the monthly data used in the econometrics cover weanlings below 7kg and feeder pigs between 7kg and 23kg, th e invoice data also include larger feeder pigs 
between 23kg and 50kg.
296    
5.101.  Canada contends that it has used the best available information for its calculations of price 
impact on feeder pigs, and that a lack of government data should not deny Canada losses for the 
drop in feeder pig prices resulting from the COOL measure.297 We agree that if and where a 
Member has submitted the best available information,  it might be appropriate for an arbitrator to 
decide to accept that information in that particular proceeding. However, we note that in this arbitration, alternative data sets have been pr oposed that do not suffer from the fundamental 
issues of representativeness and comparability described above.
298 Thus, for the reasons set out 
above, we are not convinced that the information submitted by Canada does indeed qualify as the 
"best available information".     
5.102.  In conclusion, we find that Canada's estimation of the feeder pig price is not sufficiently 
reliable. Given this finding, we do not need to address the broader question, raised by the United 
States, of whether Canada would have had to submit all invoices of the firm in question and also 
invoices from other companies.  
5.2.2  Quantity impact estimation 5.2.2.1  Canada's econometric estimation 5.2.2.1.1  Arguments of the parties 
5.103.  Canada uses an econometric analysis to estimate the impact of the COOL measure on the 
quantity of livestock exported to the United States.   
5.104.  The United States argues that "[f]or the estimates in Canada's model to reflect any degree 
of accuracy, the variables that may have an effect on price or quantity must be accurately 
estimated and properly specified."
299 Thus, the United States makes the same arguments against 
Canada's econometric determination of quantity impact that it makes in respect of the econometric 
determination of price basis (i.e. regarding variable omission and the suitability of econometric 
analysis for isolating the impact of the COOL measure).300  
5.105.  Canada argues that its econometric estima tions are focused "solely" on the impact of the 
COOL measure, and deliberately exclude "extraneous variables that would introduce concerns that 
would bias the measured impacts of the amended COOL measure".301 Canada submits that, "[a]s 
with the price basis, export quantity, by definiti on, reflects the difference in economic conditions 
between the markets in the two countries."302  Canada further states that, "[j]ust as with the price 
basis, variations in export quantity are driven by  variations in the functions representing both the 
demand for imports and supply of exports."303 
5.2.2.1.2  Analysis by the Arbitrator 
5.106.  As described above, an accurate econom etric analysis requires capturing and accounting 
for relevant factors (independent explanatory vari ables) that have an effect on the dependent 
variable (in this case the change in quantities ex ported). If accurately specified, an econometric 
                                               
296 An additional issue is, as the United States notes, that the prices are not weighted 70 to 30 as was 
done in the invoice analysis in accordance with the stated respective market share of weanlings and larger feeder pigs. United States' comments on Canada's re sponse to Arbitrator question No. 57, para. 100.  
297 Canada's written submission, para. 56. 
298 United States' response to Arbi trator question No. 21, para. 76. 
299 United States' written submission (Canada), para. 93.   
300 See United States' written submission (Canada), paras. 91-104; United States' response to Arbitrator 
question No. 5(a), para. 30. 
301 Canada's written submission, para. 26.  
302 Canada's response to Arbitrat or question No. 5(b), para. 15. 
303 Canada's response to Arbitrat or question No. 5(b), para. 15. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  analysis should isolate the effects of a particular independent variable (in this case the COOL 
measure) to determine its impact on quantities of Canadian livestock exported to the United 
States. 
5.107.  The quantity estimation submitted by Canada, unlike the price basis specification discussed 
above, is in terms of absolute quantity levels. We recall that the price basis specification was 
appropriate given the nature of the North American livestock market and evidence of price-arbitrage conditions. Focusing on the price basis enabled exclusion of variables that did not 
differentially impact prices of different-origin livestock. As noted by Canada in that context, 
"including the U.S. price in the basis specification allows one to capture parsimoniously the impacts of a host of variables that may affect livestock prices in both countries in a similar way".
304  
5.108.  Estimating quantity impacts in absolute levels, by contrast, does not similarly permit 
omission of variables that had a common impact on North American markets. Rather, such an 
estimation would need to account for any supply or demand factor affecting export quantities. Canada refers to "the amended COOL measure's impa ct on export quantity" also being "direct, i.e. 
it caused a loss of export shipments between Canadian and U.S. locations."
305 While it is expected 
that the COOL measure, as the relevant explanat ory variable of interest , would affect export 
quantities, failure to control for other such variables creates the potential for introducing bias in 
the COOL parameter estimates. 
5.109.  We note Canada's acknowledgement that the purpose of its regression specification is "to 
estimate the magnitude of the impact on actual exports" that should "generate estimates that 
directly enter the calculation of losses".306 At the same time, Canada refers to the exclusion of 
factors that affect livestock export quantities, citing lack of available data and likely 
underestimation of the COOL impact as a result of omitting the variables.307 However, these are 
among many other potential variables that have been omitted in Canada's quantity specification. 
As pointed out by the United States, separate estimations of absolute price and quantity impacts 
would need to control for the same exogenous factors as explanatory variables.  
5.110.  Therefore, Canada's econometric estimation does not adequately control for relevant 
explanatory variables that, in addition to the COOL measure, may affect livestock export 
quantities. Although Canada's quantity specification mirrors its price basis specification in respect of the set of control variables, the methodologic al advantages afforded by focusing on price 
differentials do not apply to an estimation of absolute quantity levels. As a result, we are unable to 
accept Canada's econometric estimation of the im pact of the COOL measure on export quantities. 
5.2.2.2  Mexico's elasticity-based  simulation of quantity effects 
5.2.2.2.1  Arguments of the parties 
5.111.  To estimate the impact of the COOL me asure on the quantity of Mexican feeder cattle 
exports, Mexico relies on a simulation using the COOL impact on export prices (estimated econometrically using the price basis) and a derived elasticity of export supply.  
5.112.  The United States argues that this approach is "insufficient to account for the complexity of 
the feeder cattle market in Mexico and the United States, much less to account for linkages to demand for fed cattle and beef or to substitute products such as pork."
308 The United States is of 
the view that the calculation should account for all factors influencing quantity outcomes, including 
supply and demand effects in the United States and in Mexico, as well as the impact of exports 
from Canada to the United States.309 The United States suggests that "Mexico’s estimation of the 
quantity impact is based on a formula which assumes 100 percent pass through of the bias 
                                               
304 Canada's written submission, para. 35. 
305 Canada's response to Arbitrat or question No. 5(b), para. 15. 
306 Canada's response to Arbitrat or question No. 5(b), para. 16. 
307 Canada's methodology paper, Sumner Study,  paras. 68, 70, and 129-131; Canada's written 
submission, paras. 47-49. 
308 United States' written submission (Mexico), para. 82. 
309 United States' written submission (Mexico), para. 82. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  inherent in the price basis estimate into the quanti ty change simulation. The result is an estimate 
that grossly overestimates the effect of COOL on U.S. imports of feeder cattle from Mexico."310 
5.113.  Additionally, the United States argues that the value of the export supply elasticity used to 
simulate the counterfactual change in export volumes is unproven, un-reviewed, and derived with 
little explanation.311 According to the United States, Mexico's elasticity of export supply is based on 
a single year, 2012, a period of time most certainly affected by drought and other factors.312 The 
value of the export supply elasticity also appears to make unsupported assumptions about the rate 
of export.313  
5.114.  Mexico notes that its equation for determin ing the elasticity of the export supply curve is 
identical to an equation used in the United States' EDM.314 Additionally, Mexico submits that this 
single equation is "sufficient and does not need to account for the complexity of the feeder cattle 
market in Mexico and the United States because, as explained previously, this is accounted for in 
the … price basis regression."315 Mexico further notes that exports of livestock from Mexico and 
Canada "represent a small share of the total U.S. livestock market."316 Mexico therefore asserts 
that "[c]hanges in export volumes from Mexico and Canada would thus have a small impact on 
U.S. livestock prices."317 According to Mexico, the geographic size of the United States also limits 
direct competition between Mexican and Canadian cattle.318 
5.115.  Regarding its estimated export supply elasticity figure, Mexico contends that the figure was 
"derived based on observed data in a transparent way."319 Mexico notes that the derived elasticity 
value of 4.0 is reasonable given the size and structure of Mexico's cattle market, as well as empirical evidence on supply and demand elasticities.
320 Mexico asserts that 4.0 is a "conservative 
estimate" given the empirical evidence and the "length of run over which the market adjusts to the 
introduction or the removal of COOL measures."321 Mexico further argues that "[t]he calculation of 
the export supply elasticity builds on values from  the literature for Mexico’s domestic demand and 
supply of feeder cattle and uses the observed share of feeder cattle produced that it exported to 
the United States. This is the proper method to calculate the elasticity."322 
5.2.2.2.2  Analysis by the Arbitrator 
5.116.  In contrast to Canada's econometric estimation of quantity impact, Mexico relies on an 
elasticity-based simulation. Based on the econometrically estimated impact of the COOL measure on export prices, Mexico simulates the corresponding impact on export volumes using a derived elasticity of export supply.  
5.117.  Elasticity measures the responsiveness of one economic variable to a change in another 
variable. Mexico derives the export  supply elasticity value by using a rearranged expression of the 
elasticity of the export supply curve. The elastici ty of the export supply curve measures how the 
volume/quantity of exports responds to changes in  the export price. In mathematical terms, the 
price elasticity is defined as the ratio between th e percentage change in export quantities and the 
percentage change in export price in relative terms. 
5.118.  The counterfactual change in export quan tity is expressed as the product of: (a) the 
counterfactual change in export price; (b) the inverse of the export price in the baseline period; 
                                               
310 United States' comments on Mexico's response to Arbitrat or question No. 34, para. 19. 
311 United States' written submission (Mexico), para. 84.  
312 United States' written submission (Mexico), para. 84. 
313 United States' written submission (Mexico), para. 84. 
314 Mexico's written su bmission, para. 52.  
315 Mexico's written su bmission, para. 52. 
316 Mexico's written submission, para. 53 (citing 2013 Final Rule, p. 31367).  
317 Mexico's written su bmission, para. 53. 
318 Mexico's written su bmission, para. 53. 
319 Mexico's written su bmission, para. 55.  
320 Mexico's written submission, para. 55 (citing J. M.  Marsh, "Impacts of Declining U.S. Retail Beef 
Demand on Farm-Level Beef Prices and Production", American Journal of Agricultural Economics , Vol. 85 
(November 2003), (Exhibit MEX-2, Appendix 8), pp. 902-913). 
321 Mexico's written su bmission, para. 55. 
322 Mexico's response to Arbitrat or question No. 45, para. 94. WT/DS384/ARB ● WT/DS386/ARB 
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  (c) the export quantity in the baseline period; an d (d) the elasticity of Mexico's export supply.323 
This can be expressed using the following equation where Qc and Pc are the observed quantity and 
export price of feeder cattle, ∆P is the estimated impact of the COOL measure on the export price 
of feeder cattle, and εe is the export supply elasticity324:  
PPQ Qc e  
5.119.  While data on export price and export quan tity in the baseline year are available, and the 
counterfactual change in export price was estimate d econometrically, the elasticity of Mexico's 
export supply is the only parameter that remains to be determined.  
5.120.  Because the value for the elasticity of export supply is not directly available in the 
literature and is technically difficult to estimate empirically325, Mexico derives its export supply 
elasticity of feeder cattle as a function of th ree variables: its own domestic supply and demand 
elasticities for feeder cattle and the share of exports of feeder cattle of Mexican supply. In mathematical terms, this formula can be expressed as follows where ω is the share of exports, ε
s 
is the elasticity of domestic supply, and η is the elasticity of domestic demand326: 

 1s
e  
5.121.  We note that this is a well-established formula in the economic literature used for the 
calculation of export supply elasticities.327 Ideally, using this formula would simply require 
inputting the relevant figures for Mexico's domestic supply and demand elasticities with a straightforward computation of its export share.  
5.122.  With regard supply and demand elasticities for feeder cattle, direct estimates of these 
elasticities are not available for Mexico. For this reason, Mexico uses estimates of long-run supply 
and demand elasticities for US feeder cattle. Mexico  explains that "the supply elasticity of feeder 
cattle is determined by biological factors such as gestation period, and these biological factors are 
the same in the United States and Mexico".
328 Furthermore, Mexico argues that recent 
modernization of Mexican cattle industry and other factors "make[] the Mexican cattle industry more like that of the United States".
329 Thus, in Mexico's view, absent direct estimates for Mexican 
demand and supply elasticity, estimates for US demand and supply elasticities are reliable values 
of Mexican feeder cattle elasticities. 
5.123.  We note that the United States has not objected to the use of US demand and supply 
elasticities as a proxy for Mexican demand and supply elasticity values. Furthermore, the United 
States also considered estimates of US-based elasti cities as proxies for Mexico's elasticity in its 
proposed methodology (i.e. EDM) to estimate the level of nullification or impairment.  
5.124.  Turning to the figure for the export share of feeder cattle ( ω in the export supply elasticity 
formula), Mexico acknowledges that calculating the export shares of feeder cattle requires knowing 
Mexico's annual production of feeder cattle and exports to the United States. For this purpose, Mexico uses the figure of 1.11 million head of feeder cattle exports annually to the United States
330 
and calculates an "annual beef calf crop in Mexico of 4.8 million heads".331 These two figures are 
                                               
323 Mexico's methodology paper, Poul iot Study, p. 17, equation (5). 
324 Mexico's methodology paper, Poul iot Study, p. 17, equation (5). 
325 Mexico explains that it is not able to estimate th e export supply elasticity econometrically because of 
the confounding effects from the drought and the COOL me asure. Mexico's methodolog y paper, Pouliot Study, 
p. 18, footnote 4. 
326 Mexico's methodology paper, Poul iot Study, p. 18, equation (6). 
327 The United States acknowledges that  "[t]he surplus supply (export) elasticity equation Mexico relied 
on its Methodology Paper is a standard equation that is reflected in the literature." United States' response to 
Arbitrator question No. 46, para. 85. See also Canada's response to Arbitr ator question No. 46, footnote 42.  
328 Mexico's methodology pape r, Pouliot Study, p. 19. 
329 Mexico's methodology pape r, Pouliot Study, p. 19. 
330 See Mexico's methodology paper, Pouliot Study, p.  20 (citing data taken from the Economic Research 
Service of the USDA). 
331 Mexico's methodology pape r, Pouliot Study, p. 20. WT/DS384/ARB ● WT/DS386/ARB 
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  the basis for, respectively, the numerator and the denominator in Mexico's calculation of export 
share. Thus, Mexico explains that, "[a]ssuming that all feeder cattle in Mexico can be exported to 
the United States, with an annual crop of 4.8 million heads and exports of 1.11 million heads, yields ω
e = 0.23."332 We note that the inputs for this calculation are themselves derived on the 
basis of various assumptions. In particular, Mexi co relies on the assumption that the number of 
feeder cattle born and exported is the same in two consecutive years to estimate the annual beef calf crop production in 2012.  
5.125.  Apart from these considerations for deriving the necessary inputs, a fundamental 
a s s u m p t i o n  i n  M e x i c o ' s  c a l c u l a t i o n  o f  e x p o r t  s h a r e s  i s  t h a t  " n o t  a l l  f e e d e r  c a t t l e  i n  M e x i c o  a r e  eligible for export".
333 According to Mexico, this is due to identification requirements, protocols to 
prevent importation of diseased animals, and qualit y considerations relating to different breeds of 
cattle in Mexico. In this regard, Mexico considers that value of ω = 0.75 "is reasonable given the 
description of the Mexican cattle industry provided in" studies of beef and cattle production in Mexico.
334 Mexico then calculates from this asserted export share of 0.75 that only 31 per cent of 
annual calf production (i.e. 31 per cent of the 4.8 million heads derived from the assumptions 
described above) is eligible for export to the United States (where 0.75 = 1.11/4.8*0.31). Thus, the share of 31 per cent of production that is eligible for exportation is simply assumed on the 
basis of what Mexico contends is a "reasonable" value for the export share of feeder cattle. 
5.126.  With regard to export share and export supply elasticity values submitted by Mexico, the 
United States argues that Mexico "appears to make unsupported assumptions about the rate of export, and ultimately with little explanation conclude s that the export supply elasticity is 4. This 
elasticity exceeds the appropriate level."
335 The assumptions underlying Mexico's calculation of 
export shares are indeed integral to its derivati on of the export supply elasticity with which it 
simulates the export quantity impacts of the COOL measure. At the same time, Mexico 
acknowledges that there are "no data that specif ically describe […] the number of feeder cattle 
according to their breed".336 We note that the sources relied upon by Mexico for its export share 
assumptions do reflect that certain breeds are more commonly exported.337 However, the same 
sources indicate variation in this pattern and shifts from historical trading patterns that cast 
further doubt on the accuracy of Mexico's assert ions about the share of export eligibility and, 
correspondingly, the actual share of those eligible cattle that are exported to the United States.338 
In our view, the United States' agreement339 that some adjustment should be made to Mexico's 
export share does not amount to conceding that Mexico has correctly done so. Nor does it obviate 
the United States' contention that the elasticity value derived by Mexico exceeds the appropriate level.  
                                               
332 Mexico's methodology pape r, Pouliot Study, p. 20. 
333 Mexico's methodology pape r, Pouliot Study, p. 20. 
334 Mexico's methodology pape r, Pouliot Study, p. 21. 
335 United States' written submission (Mexico), para. 84.   
336 Mexico's methodology pape r, Pouliot Study, p. 20. 
337 D. Peel et al., "Cow-Calf Beef Production in Mexico", Report from the Economic Research Service 
(USDA) , LDP-M-196-01 (November 2010), (Exhibit MEX-2, Appendix 10), p. 16 ("Cattle for export are 
primarily of British/Continental breeding, generally with no more than three-eighths Zebu influence."). 
338 D. Peel et al., "Cow-Calf Beef Production in Mexico", Report from the Economic Research Service 
(USDA) , LDP-M-196-01 (November 2010), (Exhibit MEX-2, Appendix 10), pp. 16-17 ("Recently, the increased 
feasibility and lower costs of spaying heifers are such that, when U.S. cattle prices are cyclically high, a 
substantial number of heifers are also being exported. … Export origins, however, have changed over time and 
can be disrupted by regional health status. … When tr aditional export cattle sources are restricted, other 
regions make up some of the difference [and] a genera l improvement in cattle quality in many regions has 
narrowed the differences in quality; as a result, more cattle are suitable for export now than in the past."). The 
dynamic and evolving nature of Mexican cattle production  and exportation is also re flected in the other study 
relied upon by Mexico. See D. Peel et al., "Trade, the Expanding Mexican Beef Industry, and Feedlot and 
Stocker Cattle Production in Mexico", Report from the Economic Research Service (USDA) , LDP-M-206-01 
(August 2011), (Exhibit MEX-2, Appendix 11), p. 14 ("Cattle  are sourced from all parts of Mexico, with a large 
majority of cattle in the northern half of the country either exported or fed in feedlots."). 
339 In particular, the United States considers that "Mexico correctly notes [that] the calculation of ωe 
should take into account factors that affect Mexican feeder catt le exports as a share of Mexican feeder cattle 
supply", and that Mexico's "adjustment [to the export shar e] reflects the fact that no t all Mexican feeder cattle 
are eligible to export and is consiste nt with other literature that describes the Mexican cattle industry." United 
States' response to Arbitrator  question No. 46, para. 85. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  5.127.  We note that the export supply elasticity  varies inversely with the export share of a 
product. Thus, a smaller export share of a product in relation to total supply will lead to greater 
export supply elasticities, and thus greater impacts on export quantities as a result of changes in 
the export price. Even if Mexico's assumed value of 31 per cent of export eligibility were correct, 
the question then becomes whether the share of exported cattle from the limited number of 
eligible cattle is no more than 75 per cent. If more than 75 per cent of cattle eligible for export were in fact exported, using an export share valu e of 0.75 would inaccurately inflate the export 
supply elasticity and, consequently, the export qu antity impact. The same is true if the assumed 
value of 31 per cent of export eligibility overstates  the share of annual calf production that can be 
exported. Had Mexico assumed that, say, only 20 or 10 per cent of cattle were eligible for export, the resulting export share would be greater and thus yield a lower export supply elasticity than 4 
(as well as a lower impact on export quantities).  In either of these scenarios, the export supply 
elasticity (and export quantity impact) would be overstated based on unverifiable assumptions 
about Mexican cattle production and exportation.
340 
5.128.  Given the foregoing, we are of the view th at export supply elasticity value of 4.0 submitted 
by Mexico is insufficiently supported by evidence for an assessment of whether Mexico's proposed level of suspension is equivalent to the level of nullification or impairment. 
5.2.3  Data issues 
5.129.  In this section, we address a number of data issues that the United States has raised in 
challenging the reliability of Canada's and Mexico's calculations. 
5.2.3.1  Use of data other than US  Census Bureau import statistics 
5.130.  We begin with the United States' challenge concerning the use of data other than the 
official import statistics provided by the US Census Bureau, an entity within the US Department of Commerce.  
5.2.3.1.1  Arguments of the parties 
5.2.3.1.1.1  Canada's  use of APHIS data 
5.131.  We note that Canada uses weekly data from the Animal and Plant Health Inspection 
Service (APHIS) of the USDA for purposes of identi fying the quantities of all four categories of 
livestock exported.
341 Those quantities are used in the econometric estimation of the 
counterfactual export quantities as well as for the baseline values.  
5.132.  The United States challenges the use of weekly APHIS data, arguing that only official 
monthly data are accurate and appropriate.342 Specifically, the United States claims that Canada 
relies on unofficial weekly cattle and hog import data derived from veterinary certificates collected by APHIS.
343 The United States explains that APHIS statistics are unofficial and are not subject to 
publically released corrections or revisions.344 Furthermore, the fact that weekly data for cattle and 
hogs imports "is often revised and may not be repo rted for each week" causes overall data to be 
incomparable.345 In addition, the United States argues that using weekly data is inappropriate 
because weekly data introduce "significant 'noise'" into the dataset, affecting the econometric 
                                               
340 Indeed, Mexico explains that alternative values fo r the export supply elasticity can be derived using 
other values for the export share. For example, using an  export share of 1, which means that "all the feeder 
cattle that potentially could be export ed to the United States are actually exported", generates a lower export 
supply elasticity of 2.82. Using an alternative assumption  "that Mexico's export capacity to the United States 
equals its annual production of beef feeder cattle", the export supply elasticity  rises to 14.77. Mexico's 
response to Arbitrator question No. 18, paras. 58- 60. Thus, the derived elas ticity value depends on 
assumptions about export eligibility in the computation of export share.  
341 Canada's methodology paper, Sumn er Study, Appendix II, para. 188. 
342 United States' written submissi on (Canada), paras. 108-109.  
343 United States' written submissi on (Canada), paras. 108-109.  
344 United States' written submission (Canada), para. 108. 
345 United States' written submission (Canada), para. 109. WT/DS384/ARB ● WT/DS386/ARB 
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  regressions and subsequent analysis.346 The United States suggests using only official monthly 
import data provided by the US Census Bureau data, which are less "noisy".347  
5.133.  The United States re-ran Canada's econometric model using official US Census Bureau 
data, and after revising its initial iteration to fix certain methodological errors identified by Canada, 
the United States asserted that the use of APHIS data increases the estimate of export losses by 
almost double: the use of US Census Bureau data suggests that approximately 156,684 feeder cattle would have been exported per year, while the APHIS data used by Canada indicates that 
306,176 feeder cattle would have been exported per year.
348 The United States suggests that this 
demonstrates that Canada's model is not robust, because a robust model would provide similar results regardless of the use of monthly or weekly data.
349 
5.134.  Canada notes that APHIS data provide "four times as many data observations for export 
quantities than U.S. census data and therefore produces a more accurate and precise econometric 
calculation."350 Furthermore, Canada relied on APHIS data previously, and the original panel 
"concluded that the data was acceptable and reliable."351 Additionally, Canada argues that APHIS 
data are available "every week for many years in a consistent way" and are recorded by "an 
official government agency of the United States."352 Canada emphasizes that "[f]or all animal 
categories, the quantity shipped into the United  States has no missing values for any week."353 
Regarding "noise", Canada suggests that any random noise generated (if there is any) "tends to 
drive estimated coefficients towards zero, not make them seem larger and more significant".354 
5.135.  Canada notes that the data recommended by the United States "do not allow measures of 
export animal prices for animals precisely comparable to those for which there are domestic prices 
in the United States [meaning that] these monthly data are not suitable for price basis regressions 
and no analyst uses them for this purpose."355 Additionally, "the data from USDA APHIS derives 
from actual border inspections of livestock ship ments, whereas using Commerce Department data 
relies on reporting of total values of shipments and associated quantities.  (Recall that these are 
reported by HTS code for items for which there is no import duty or other trade barrier other than animal health and COOL.)"
356 Additionally, Canada states that  US Department of Commerce data 
are not available for fed barrows and gilts for immediate slaughter, a relevant category of 
livestock357, and the US Department of Commerce data "mix fed hogs with old sows and boars 
shipped to the United States for slaughter and Cana da is not claiming losses in respect of this 
trade."358 Canada also heavily criticised a number of alleged methodological errors in the United 
States' initial attempt to replicate Canada's econometrics utilizing US Census Bureau data.359  
5.2.3.1.1.2  Mexico's use of AMS data 5.136.  We note that for purposes of its price estimation and its baseline values, Mexico uses 
weekly price data for Texas and New Mexico provid ed by the Agricultural Marketing Service (AMS) 
                                               
346 United States' written submission (Canada), para. 109. 
347 United States' written submission (Canada), para. 109. 
348 United States' opening statement at the meeting of the Arbitrator, para. 44-45; United States' 
comments on Canada's response to Arbi trator question No. 37, paras. 58-61. 
349 United States' opening statement at the meeting of the Arbitrator, para. 46; United States' 
comments on Canada's response to Arbi trator question No. 37, paras. 63-64. 
350 Canada's written submission, para. 51.  
351 Canada's written submission, para. 51 (citing Panel Report, US – COOL , paras. 7.444-7.463, 7.469-
7.481, and 7.508-7.546).  
352 Canada's written submission, para. 52. 
353 Canada's written submission, para. 52. 
354 Canada's written submission, para. 53.  
355 Canada's response to Arbitrator question No. 37, para. 189. 
356 Canada's response to Arbitrator question No. 37, para. 190.  
357 Canada's response to Arbitrator question No. 37, para. 190. 
358 Canada's response to Arbitrator question No. 37, para. 190. 
359 Canada's response to Arbitrator question No. 37, para. 192-203. WT/DS384/ARB ● WT/DS386/ARB 
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  within the USDA.360 Mexico uses a monthly average price of two weight categories, 350lb and 
550lb, representing the mid-point weights of two different weight categories.361  
5.137.  The United States characterizes Mexico's use of AMS pricing data as inaccurate and 
inappropriate.362 The United States argues that such pricing data are not consistently reflective of 
the "types" of feeder cattle that are imported from Mexico due to heavy reliance on "auction data", 
which would not apply to feeder cattle from Mexico sold on the basis of "forward contracts or other pricing devices".
363 For this reason, the United States is of the view that weekly AMS data are 
likely to overestimate the baseline prices for cattl e, resulting in an inaccurate and inflated price 
basis.364 According to the United States, apart from the United States' own trade data, "Mexico’s 
official trade data demonstrates that the per unit export value is much closer to the per unit U.S. import value that the U.S. Census [Bureau] reports."
365  
5.138.  Mexico notes that the AMS data "offer an unbiased measure of the price paid for Mexican 
feeder cattle … The data provided by the AMS are appropriate for this analysis and in fact the United States used the same data source to calibrate its own EDM."
366 Mexico notes that the US 
Census Bureau data relied on by the United States use customs value to determine prices, which is 
not based on transaction value "where imported items have not yet been sold at the time of 
importation, which is the case for Mexican cattle that are brought across the border to be sold 
subsequently within the United States."367 Mexico also states that the value of the cattle is 
irrelevant for customs purposes, since cattle are imported duty-free (under NAFTA) and even the 
United States' MFN duty rate "is appraised on th e basis of animals' weight and not their value."368 
Thus, since unit-values based on customs value are not based on actual market transactions, they 
do not offer an accurate value of Mexican feeder cattle exported to the United States.369 
Furthermore, Mexico provides evidence that whil e "buyers and sellers may have verbal discussions 
prior to exportation … sales are finalized only after the cattle have crossed the border into the 
United States."370 Mexico also asserts that the "Mexican cattle industry reports that almost all 
export transactions" are in the form of "ventas directas".371 
5.139.  Mexico also notes that: (a) AMS data and United States' census bureau data are broadly 
consistent up until 2011372; (b) a report published by the USDA in October 2014 demonstrates 
prices in New Mexico and Texas that are consistent with Mexico's pricing data373; and (c) the prices 
of Canadian feeder cattle for Canada's base-period (November 2013 to November 2014), as calculated by both Canada and the United States, "are much closer to the values calculated by 
Mexico for Mexican feeder cattle during the period 2014".
374 Mexico emphasizes that the United 
States customs data do not reflect real transaction prices. In support of its arguments, Mexico provides the following evidence: (a) sample invoices
375; (b) evidence that USDA data are based on 
sales after importation376; (c) satellite imagery of a border crossing ranch facility377; and (d) a 
                                               
360 Mexico's methodology paper, Poul iot Study, pp. 9-10. Mexico conver ts the weekly data to monthly 
data.  
361 Mexico's methodology paper,  Pouliot Study, pp. 9-10. 
362 United States' first written submission (Mexico), para. 80. 
363 United States' first written submission (Mexico), para. 80. 
364 United States' first written submission (Mexico), para. 80. 
365 United States' response to Arbi trator question No. 16, para. 71. 
366 Mexico's written su bmission, para. 50. 
367 Mexico's response to Arbitrator question no. 30(b), para. 84 (citing 19 U.S.C. § 1401a(b)(1)). 
368 Mexico's response to Arbitrator  question No. 30(b), para. 84 (citin g Harmonized Tariff Schedule of 
the United States, tariff item 0102.29.40).  
369 Mexico's response to Arbitrat or question No. 30(b), para. 86. 
370 Mexico's response to Arbitrator question No. 58, para. 114. 
371 Mexico's response to Arbitrator question No. 58, para. 116. 
372 Mexico's response to Ar bitrator question No. 30(b) , para. 83 and figure 1.  
373 Mexico's response to Arbitrat or question No. 30(b), para. 85. 
374 Mexico's response to Arbitrat or question No. 30(b), para. 85. 
375 Mexico's comments on United States' response to Arbitrator  question No. 59, para. 68.  
376 Mexico's comments on United  States' response to Arbitrat or question No. 59, para. 67. 
377 Satellite map of border crossing at Santa Teresa , New Mexico, (Exhibit MEX-46); see also Mexico's 
comments on United States' response to  Arbitrator question No. 59, para. 69. WT/DS384/ARB ● WT/DS386/ARB 
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  ruling of a United States Tax Court stating that cattle usually spend no more than eight hours on 
the United States' side of the border before being collected by buyers.378 
5.2.3.1.2  Analysis by the Arbitrator 5.140.  Calculating export revenues requires inputs of data on prices and quantities. In Canada's 
and Mexico's approaches to these calculations, data are needed not only for the "baseline" value 
(actual revenues in 2014), but also for the sample of observations used in the econometric estimation. The United States also needs data on baseline values for purposes of its calculations 
under an EDM. Thus, all calculations require price and export quantity information. The 
disagreement among the parties relates to the approp riate source from which that data should be 
taken. 
5.141.  The United States' position is that Canada  and Mexico must use import statistics from the 
US Census Bureau rather than data from the USDA, namely APHIS and AMS. The United States 
itself relies on the US Census Bureau import statistics with regard to Mexican and Canadian baseline values.
379  
5.142.  The fact that a party designates certain import statistics as the official source of trade data 
does not mean that Members are limited to using these particular data for purposes of calculating import figures. Nor are we as Arbitrator confined to reliance upon such statistics in carrying out 
our mandate. In our view, whether or not a specific source of data may be used for these purposes 
turns on whether the data are reliable and reflec t as accurately as possible import quantities 
and/or import prices.  
5.2.3.1.2.1  Canada's  use of APHIS data 
5.143.  With regard to APHIS data, we refer to our conclusion above in section 5.2.3.1 that 
Canada's econometric quantity estimation does not adequately control for factors other than the COOL measure that affect export quantities. Th erefore, we are unable to rely on Canada's 
econometric estimates of the quantity impact irrespective of the data used. Under the 
circumstances, it is unnecessary to further examin e the use of APHIS data in respect of Canada's 
quantity impact estimation.  
5.144.  The issue that remains is whether APHIS data may be used for purposes of establishing 
baseline values. APHIS is an entity within the USDA and, thus, is a government source. We do not see a reason to consider data from this source to be inherently less reliable than the alternative source of US Census Bureau statistics. The question, in our view, is which data best reflect actual 
import quantities. We observe that the quantities identified by APHIS are generally lower
380, but 
differ only slightly from the quantities identified by the US Census Bureau.381 Given that the 
differences are modest and, in addition, could be explained by inaccuracies in either  source, we 
see no reason to consider the use of APHIS data to  be any less accurate or reliable than US Census 
Bureau data.  
5.145.  As regards slaughter hogs, we note that there is a considerable discrepancy between the 
quantity reported by the United States and the quantity reported by Canada.382 However, we 
observe that in its calculations, the United States uses only a percentage of the quantity reported.
383 The reason for doing so, according to the United States, is that the relevant tariff line 
from which the United States derived the overa ll quantity does not distinguish between barrows 
                                               
378 US Tax Court, T.C. Memo. 2000-357 (16 November 16 2000), (Exhibit MEX-48); see also Mexico's 
comments on United States' response to Arbitrator question No. 59, paras. 69-70. 
379 Guide to the COOL EDM, (Exhibit USA-4), p.2. 
380 The following APHIS values are taken from the Table attached to Arbitrator question No. 30: (unit: 
head) (1) Imports of feeder pigs:  4,095,688 (USA) and 3,916,714 (CAN); (2) Imports of slaughter hogs: 763,767 (USA) and 405,124 (CAN); (3) Imports of feeder cattle: 489,457 (USA) and 448,875 (CAN); (4) Imports of fed cattle: 403,357 (USA) and 389,811 (CAN). 
381 The baseline quantities exported differ by the following percentages when  moving from APHIS data 
to US Census Bureau data : feeder pig exports increase by 4.57 pe r cent; fed hog exports decrease by 5.71  per 
cent; feeder cattle exports increase by 9.04  per cent; and fed cattle exports increase by 3.48  per cent. 
382 See COOL EDM worksheet with data, paramete rs, and equations, (Exhibit USA-3), tab 3. 
383 See Guide to the COOL EDM, (Exhibit USA-4), p. 2. WT/DS384/ARB ● WT/DS386/ARB 
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  and gilts slaughtered to obtain muscle cuts (to wh ich labelling requirements apply), and sows and 
boars slaughtered for other types of meat (to which labelling requirements do not apply).384 In 
recognition of the broad scope of products included in source data, the United States uses only a percentage of the total for purposes of its calculations. Of interest is that the percentage is derived 
from APHIS data, confirming that the United States considers such data sufficiently accurate for 
this particular purpose.
385 It yields a number that differs only slightly from the actual APHIS 
number (382,000 heads as opposed to the 405,124 reported by Canada).386   
5.146.  Given the foregoing, we see no reason to conclude that APHIS data reports import 
quantities any less accurately than US Census Bureau data does. We therefore reject the United States' argument that Canada's use of APHIS data is inappropriate.  
5.2.3.1.2.2  Mexico's use of AMS data 
5.147.  With regard to AMS data, we note that these data are generated by an entity within the 
USDA, and thus come from the same government source as do the APHIS data referred to above. As we observed earlier, we do not see a reason to consider this US government source to be any 
less reliable than the other US government source, which is the US Census Bureau (within the 
Department of Commerce), from which the import statistics are sourced. We observe in this regard that the United States itself partially relies on AMS data for purposes of identifying its own 
domestic price.
387  
5.148.  The United States explains, however, that in respect of prices for Mexican cattle, AMS 
reporting relies on auction data, which would not apply to feeder cattle from Mexico sold on the 
basis of "forward contracts or other pricing devices."388  
5.149.  In response to this argument, Mexico subm its evidence showing that the AMS data it relied 
upon covers 71 per cent of the total quantities of cattle exported to the Unites States.389 Mexico 
also submits evidence to show that AMS prices closely correspond to sales prices in so-called 
"ventas directas" (direct sales).390 A witness statement submitted by Mexico describes these direct 
sales as sales that take place once the cattle have crossed the border.391 Further evidence 
submitted by Mexico demonstrates that exported cattle are picked up by buyers shortly after 
having crossed the border, which confirms that the prices paid are "fob" (as reported by AMS) and 
do not contain any US added value.392 A further witness statement testifies that almost all export 
transactions are done through such direct sales.393 Thus, on the basis of the evidence submitted 
by Mexico, it does not seem that AMS price data rely on any auction data at all; rather, they 
accurately reflect sales prices as agreed in the "direct sales", which are the main kind of cross-
border transactions in cattle.        
                                               
384 United States' response to Arbi trator question No.30, para.116. 
385 United States' response to Arbitrator question No . 30(a). In footnote 146 to that response the United 
States refers to the "2014 Annual LPGMN Statistics Summar y", an AMS publication. The "Hog Market Statistics" 
contained in this publication refer to "Canadian Swine Ex ports to US" citing APHIS as  the source for these data. 
386 We note that this discrepancy may also be the re sult of different baseline periods used by Canada 
(November 2013 – November 2014) and the United States (calendar year 2014).  
387 See Guide to the COOL EDM, (Exhibit USA-4), p. 2. 
388 United States' written submission (Mexico), para. 80. 
389 Mexico's opening statement at the meeting of the Arbitrator, para. 11 and footnote 5. We note that 
the AMS price data submitted only  cover New Mexico and Texas. 
390 Exhibit MEX-36 (BCI) and Comparison of invoices for Mexican cattle sold through direct sales to AMS, 
(Exhibit MEX-37). 
391 Statement of Confederación Nacional de Organiza ciones Ganaderas of 14 September 2015, (Exhibit 
MEX-26). 
392 Mexico's comments on the United  States' response to Arbitrator question No. 59. See also USDA 
Market News, AL_LS626 (3 October 2014), (Exhibit MEX-27) and US Tax Court, T.C. Memo. 2000-357 
(16 November 2000), (Exhibit MEX-48). 
393 Statement of Confederación Nacional de Organizaciones Ganaderas of 30 September 2015, (Exhibit 
MEX-44). WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  5.150.  The United States, on the other hand, submit s that it has no information on what kinds of 
sales take place between Mexico and the United States.394 Furthermore, the United States is 
unable to show that its own "unit value" as reported in the US Census Bureau import statistics reflects actual sales prices rather than just an "entered value", which, as the United States itself 
points out, "is not the value of a later sale when the animal is already in the United States".
395  
5.151.  As noted above, any data used must reflect as accurately as possible import prices or 
import quantities. Mexico has submitted convincing evidence that AMS prices reflect actual import 
prices of Mexican cattle as accurately as possible, and in any event, more accurately than the "unit 
value" reported by the US Census Bureau.       
5.152.  In conclusion, we reject the United States ' argument that the use of AMS pricing data by 
Mexico is inaccurate or inappropriate.  
5.2.3.2  Canada's sample period in respect of its cattle specification  
5.153.  We note that, for purposes of the cattle specification in its econometric estimation of price 
as well as of quantity, Canada uses a sample period starting in September 2005 and continuing 
through January 2015.396 
5.2.3.2.1  Arguments of the parties 5.154.  The United States asserts that Canada's utilization of data between 2005 and 2015 fails to 
accurately evaluate the impact of the COOL measure, since "the 'pre-COOL' period used is 
concurrent with the BSE event and its lingering effects."
397 Since these and other factors ("such as 
the effects of additional BSE episodes") are unaccounted for by Canada, the United States contends that the model may misattribute effects to COOL that were caused by these other 
factors.
398  
5.155.  Canada suggests that by July 2005 the impact of BSE was not important as "trade in fed 
and feeder cattle had resumed."399 Since the original COOL measure was only implemented at the 
beginning of the fourth quarter of 2008, Canada considers that sufficient time had elapsed from 
the BSE event, "which had by that time been resolved for young cattle imports."400 Additionally, 
Canada argues that lingering impact for older animals is resolved through the use of dummy 
variables.401 At the request of the Arbitrator, Canada  estimated the impact of extending the 
sample period to 2003. Canada noted that no export price data were available for the period due to the ban on cattle imports.
402 With respect to the quantity estimation, Canada noted that for fed 
cattle "[t]he impact of the amended COOL measure is just slightly smaller than in the base data 
set."403 For feeder cattle, "[t]he COOL impact is just slightly larger than when the shorter sample 
is used for the regressions."404   
5.2.3.2.2  Analysis by the Arbitrator 
5.156.  We concur with Canada, in respect of the econometric price estimation, that it is 
impossible to extend the sample period to 2003. The reason is that there are no price data for the 
period 2003 to 2005 given that a ban was in place due to BSE.405 The question whether to extend 
                                               
394 United States' response to Arbitrator question No. 59, para. 104 ("For these reasons, U.S. Customs 
does not maintain information regarding the type of sale s – auction, direct sale, or forward contract – that 
Mexican cattle are subject to."). 
395 United States' response to Arbitrator question No. 59, para. 102. 
396 Canada's methodology paper, Sumner  Study, Appendix II, para. 192.  
397 United States' written submission (Canada), para. 110. See also United States' answer to Arbitrator 
question No. 15, para. 69. 
398 United States' written submission (Canada), para. 110.  
399 Canada's written submission, para. 54.  
400 Canada's written submission, para. 54. 
401 Canada's written submission, para. 54. 
402 Canada's response to Arbitrator question No. 62, para. 290.  
403 Canada's response to Arbitrator question No. 62, para. 293. 
404 Canada's response to Arbitrator question No. 62, para. 293. 
405 Canada's response to Ar bitrator question No. 62. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  the period to 2003 therefore only concerns the econometric quantity estimation.406 We concluded 
above in section 5.2.3.1 that Canada's econometric quantity estimation does not adequately 
control for factors other than the COOL measure that affect export quantities, and thus cannot be relied upon as specified by Canada. Therefore, ther e is no need to make findings on whether the 
sample period for such estimation should be extended to 2003.     
5.2.3.3  Starting dates for COOL dummy variables 5.157.  We note that Canada, in its econometric es timation of price as well as of quantity, uses 
two dummy variables in its specification to account for the effect of the original and the amended 
COOL measures. The dummy variable for the original COOL measure has the starting date 29 September 2008. The dummy variable for the amended COOL measure has different starting dates depending on the livestock in question: 23 May 2013 for small-size feeder cattle and feeder pigs; 1 
July 2013 for intermediate size feeder cattle; and 2 November 2013 for fed cattle and fed hogs.
407 
5.2.3.3.1  Arguments by the parties 5.158.  The United States submits that Canada did not correctly define the time-periods to create 
the original and amended COOL measure dummy variables.
408 The United States recalls that the 
2009 Final Rule "became effective on 16 March 2009", but that the dummy variable representing the original COOL measure (DCOOL1) takes the value of 1 after 29 September 2008.
409 Similarly, 
the United States notes that the dummy variable  representing the amended COOL measure takes 
the value of 1 after 23 November 2013, while the amended COOL measure actually came "into effect" on 23 May 2013.
410 
5.159.  Canada states that it used data for the initial impact of the original COOL measure as of 
the end of September 2008 since "the industry in  the United States and Canada understood that 
the COOL measure would be expected to be in force."411 The model is designed to show the impact 
of the COOL measure based on incentives to in dustry participants, and "[b]ased on comments 
from USDA and members of Congress, industry participants understood that they would be 
expected to comply with the original COOL measure … as of the end of September 2008."412  
5.160.  Regarding the amended COOL measure, Canada recalls that labelling was only enforced 
after 23 November 2013, six months after the announcement of the Final Rule.413 A "period of 
education and outreach … lasted for six months" from May to November 2013, delaying enforcement and resulting in "no incentive for retailers to use a complex and costly new labelling regime until after 23 November 2013."
414 
5.2.3.3.2  Analysis by the Arbitrator 
5.161.  We note that the aim of Canada's and Mexico's econometric estimations is to observe the 
impact of the COOL measure on the export market  for livestock. In other words, the methodology 
is intended to capture actual effects. These effects may or may not coincide with the formal entry 
into force of the measure.  
5.162.  In respect of the specification for the orig inal COOL measure, we recall the panel's finding 
in the original proceedings in these disputes that "the COOL measure started to develop its effect 
in 2008, shortly after the United States' economic recession started in December 2007."415 
Furthermore, the United States has not rebutted Canada's assertion that industry participants had 
                                               
406 As Canada notes, the quantity can be indicated as  0 for the relevant period. See Canada's response 
to Arbitrator question No. 62.   
407 Weekly cattle data for economet rics, (Exhibit CAN-35); Weekly pi g data for econometrics (Exhibit 
CAN-36). 
408 United States' written submission (Canada), footnote 125. 
409 United States' written submission (Canada), footnote 125.  
410 United States' written submission (Canada), footnote 125. 
411 Canada's written submission, para. 57. 
412 Canada's written submission, para. 58. 
413 Canada's written submission, para. 59. 
414 Canada's written submission, para. 59 
415 Panel Report, US – COOL , para. 7.508.  WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  already begun to anticipate the COOL measure as early as September 2008, and started acting 
accordingly.416 Recalling the rules on burden of proof, the notion that econometrics is intended to 
capture actual market effects, and the lack of support provided by the United States for its 
assertion, we are satisfied with Canada's definition of the original COOL dummy.  
5.163.  As for the amended COOL measure, the United States does not refute Canada's assertion 
of a period of "education and outreach" for the six months from May 2013 to November 2013, nor Canada's assertion regarding industry incentives to use the new, more costly labelling regime. We 
find Canada's explanation compelling and reject the United States' contention that the dummy 
variable representing the amended COOL measure was mis-specified.    
5.3  Conclusion on Assessment of  Proposed Level of Suspension 
5.164.  In this section we examined whether the United States successfully established that 
Canada's and Mexico's proposed levels of suspension  are not equivalent to the level of nullification 
or impairment. We found this to be the case for the following reasons:  
a. Canada's and Mexico's losses from domestic price suppression are not included in the 
nullification or impairment measured  under Article 22 of the DSU; and 
b. In respect of export revenue losses  
i. Canada's econometric estimation of price basis does not account for price impacts 
from differential transport costs,  
ii. Canada's invoice-based estimation of feeder pig prices is not reliable,  
iii. Canada's econometric estimation of quantity does not adequately control for relevant 
explanatory variables, and  
iv. Mexico's quantity simulation is based on an  elasticity figure insufficiently supported 
by evidence.  
5.165.  We note, however, that among these flaws that we identified, not all are fatal to the 
methodology used, but can be addressed. This concerns in particular the inclusion of additional 
variables in a price estimation and the calculation of an elasticity figure in a quantity simulation. With these considerations in mind we turn to our own determination of the level of nullification or 
impairment.    
6  THE ARBITRATOR'S OWN DETERMINATIO N OF THE LEVEL OF NULLIFICATION OR 
IMPAIRMENT  
6.1  Introduction 
6.1.  As noted above in section 4, our mandate requires us to make our own determination of the 
level of nullification or impairment if we find that we cannot accept Canada's and Mexico's determinations.
417 In section 5 above, we found this to be the case and therefore now proceed to 
our own determination.  
6.2.  We recall that previous arbitrators, in devising their own approaches, have either based their 
approach on elements of the methodologies initially proposed by the parties418, or have followed 
an altogether different approach.419 As explained in section 4.2 above, we decided to examine all 
aspects of the methodologies used by Canada and Mexico in order to identify any valid elements 
                                               
416 See United States' written submission (Canada), footnote 125 ("Though Canada vaguely notes that 
this is when COOL began to affect  imports, this is clearly inaccurate and the variable should not be 
implemented until after March 16, 2009.").  
417 Decision by the Arbitrators,  EC – Hormones (US) (Article 22.6 – EC) , para. 35. 
418 See Decision by the Arbitrator,  US – Gambling (Article 22.6 – US) , para. 3.174. 
419 Decision by the Arbitrator,  US – Offset Act (Mexico) (Byrd Amendment) (Article 22.6 – US),  paras. 
3.69-3.79.  WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  that we could use in our own determination, if necessary. In our summary to section 5 above, we 
have identified these elements.  
6.3.  As noted in section 3.3 above, the United States disagreed with the methodologies of both 
Canada and Mexico and proposed its own, alternative methodology to estimate the counterfactual 
export revenue loss, namely a partial equilibrium model in the form of an equilibrium displacement 
model (EDM).420 We now turn to examining this methodology in order to see whether it is a 
possible alternative to working with elements from Canada's and Mexico's methodologies. As we 
observed above in section 4, any determination of nullification or impairment, because it is based 
on assumptions, is necessarily a "reasoned estimate " relying on "credible, factual, and verifiable 
information".421 This being the case, no methodology is perfect. The goal is to provide a reasoned 
estimate that is as accurate as possible. In our assessment of Canada's and Mexico's 
methodologies we have already discussed the strengths and weaknesses of these approaches as 
well as the reliability of the data used for their calculations. Our analysis of the EDM proposed by the United States will assess the strengths and weaknesses of that methodology in order to weigh 
them against those already identified for Canada's and Mexico's methodologies. On the basis of 
this comparative assessment, we will adopt the approach that we consider best suited in this case to providing our own reasoned estimate that is as accurate as possible.   
6.2  Description of the EDM methodology 
6.4.  We briefly describe the main elements of the EDM methodology used by the United States. 6.5.  An EDM is a partial equilibrium model representing a system of demand and supply 
relationships of a specific market or various markets forming supply chains – here the United 
States' livestock and meat markets. An EDM simula tes the changes in prices and quantities in all 
the modelled markets that arise when the syst em equilibrium is displaced because of an 
exogenous shock – in this case the removal of the COOL measure and its associated compliance 
costs.
422 
6.6.  The United States models the US market for livestock (cattle and hogs) and meat (beef and 
pork) by specifying a multi-animal and multi-sector EDM.423 I n  p a r t i c u l a r ,  f i v e  s t a g e s  o f  t h e  
cattle/beef and hogs/pork production and marketing chain are modelled: (1) farm: cow-calf and 
farrowing (i.e. feeder cattle/pigs); (2) slaughter: finishing (i.e. fed cattle/hogs); (3) wholesale: packing (wholesale-level beef/pork); (4) retail (ret ail-level beef/pork) and (5) consumers. For each 
step in the production and marketing chain, up to four types of equations are used.
424 
6.7.  In its model, the United States considers th e different elasticities and the policy change (i.e. 
the removal of the compliance costs of the COOL measure) as exogenous parameters. Such an approach is standard in an EDM, which rests on the assumption that the elasticities of the 
endogenous supply and demand relationships (i.e. prices and quantities) are known. An EDM also 
assumes that compliance costs of the COOL measure are known ("cost wedge")
425.   
                                               
420 The role of this alternative methodology in the United States' burden of  proof was discussed in 
section 4.2 above. We found that, in simply proposing an alternative methodology, the United States did not 
engage with the Canada's and Me xico's methodologies and, theref ore, did not vali dly establish a prima facie  
case against the levels of suspensi on proposed by Canada and Mexico. 
421 Decision by the Arbitrators, US – 1916 Act (EC) (Article 22.6 – US) , para. 5.54; see also Decision by 
the Arbitrator,  EC – Hormones (US) (Article 22.6 – EC), para. 41. 
422 United States' written su bmission, paras. 33-35. 
423 United States' written submission, para. 34; COOL EDM worksheet with data, parameters, and 
equations, (Exhibit USA-3); Guide to the COOL EDM, (Exhibit USA-4). Overall, the model developed by the United States includes 39 equations. 
424 The four types are: (1) Identity equations whic h specify the market clearing conditions of the 
different markets in the marketing chain,  namely that total supply is equal to total demand in each market in 
the marketing chain for pigs/pork and cattle/beef; (2) "Price equations" which specify the relationship among 
prices at different points in the marketing system; (3) "Value-added equations" which specify the mark-up 
applied over the price of livestock/meat at the finished , wholesale, and retail levels, over the price at the 
previous level (feeder, finished, and wholesale, respecti vely); (4) "Structural equations" which are the core of 
the EDM and consist of local linear approximation of the supply and demand functions in the United States' 
livestock and meat markets in terms of diff erence (i.e. change from two equilibria). 
425 United States' response to Arbi trator question No. 4, para. 20. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  6.8.  As for the elasticity parameters, the United States borrows the value of most of these 
parameters from previous research and academic literature. For the elasticities for which there is 
no readily available information, the United States makes additional assumptions in order to use the values of other elasticities as proxies. For instance, since there is no available information on 
the supply elasticities for US imports of feeder or slaughter animals, the United States assumes 
that the supply elasticities for US imports of f eeder or slaughter animals – for which there is no 
available information – take the same value as th e supply elasticity for US imports of wholesale 
meat imports.
426 
6.9.  As for the compliance costs, the United States derives the compliance costs of the original 
and amended COOL measures at the different st ages of the supply/marketing chain using the 
estimates provided in the 2009 and 2013 Regulato ry Impact Analyses (RIA) conducted by the 
USDA.427 In particular, the United States makes the assumption that the compliance costs to 
provide country-of-origin information on Canadian and Mexican livestock are the same as the compliance costs to provide such information for US-origin livestock.
428 
6.2.1  Arguments of the parties 
6.10.  Canada and Mexico both criticize the United States' approach for relying on simulation 
where actual observed data are available to measure the impact of the COOL measure.429 Mexico 
suggests that EDMs "are not a standard approach for use in an ex post analysis when data are 
available."430 Similarly, Canada points out that "in an analysis where data on actual results caused 
by policy changes are observed, it is feasible an d preferable to conduct an assessment of actual 
outcomes", for instance through the use of econometrics.431 
6.11.  Furthermore, Canada and Mexico highlight a number of assumptions relied upon in standard 
EDMs including the EDM used by the United States. Canada notes that broad general assumptions include: perfect competition; that all sources of animals are used in all markets by all plants and 
firms; no substitution in processing; constant returns to scale; a "key assumption that implies only 
tiny changes on livestock of all origins"; perfect market equilibrium before and after the COOL measure; full equilibrium with the COOL measure in place; and "full equilibrium and all adjustment 
completed under the 'but for COOL' counterfactual".
432 According to Canada, these assumptions 
fail to capture reality, resulting in an unrealistic estimate of nullification or impairment.433 
6.12.  Canada and Mexico also take issue with the United States' choice of elasticities, arguing that 
the elasticities used in the model are "inappropriate to measure the full  impacts"  of removing the 
COOL measure.434 Canada and Mexico both assert that the United States' reliance on short-run 
elasticities is misplaced, since the EDM "assumes that a new full equilibrium is established in all markets and no further adjustment is underway."
435 Canada and Mexico also challenge the United 
States' choice of wholesale meat import elasticiti es as a proxy for feeder and slaughter livestock 
import supply elasticities.436 Mexico notes in particular that the United States lacks any "economic 
rationale" to use wholesale meat import elasticity as a proxy for feeder and slaughter animal 
import elasticities.437 Canada also notes that the United States relies on elasticities that were 
                                               
426 United States' written submission, para. 45. 
427 United States' written su bmission, paras. 47-58. 
428 United States' written submission, para. 56 (not ing that "RIA costs were developed with the 
understanding that all entities, whether in the United States or elsewhere, would face similar tasks and direct costs regardless of their location (e.g.,  the cost of recordkeeping in the United States is similar to the cost of 
recordkeeping in Canada)"). 
429 Canada's written submission, para. 63; Mexico's written submission, para. 19.  
430 Mexico's written su bmission, para. 20.  
431 Canada's written submission, para. 63.  
432 Canada's written submission, para. 76.  
433 Canada's written subm ission, paras. 78-79. 
434 Canada's written submission, para. 83; Mexico's written submission, para. 32. 
435 Canada's written submission, pa ra. 85. See also Mexico's written submission, para. 32 ("complete 
removal of the COOL measure would require a pe riod of adjustment that exceeds one year"). 
436 Canada's written submission, para. 85; Mexico's written submission, para. 34. 
437 Mexico's written submissi on, para. 34. Mexico argues to the co ntrary that supply elasticities of 
downstream inputs will impact upstream products' supply elasticities, which suggests that there would be a 
difference. Mexico's written submission, para. 34. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  "ironically" determined econometrically, but using "inappropriate" methods and decades-old 
data.438 
6.13.  Canada's and Mexico's main criticism against the United States' EDM, however, concerns the 
approach that the United States has taken on the compliance cost parameter (which, as noted 
above, is based on RIA data). Canada and Mexi co identify as "a fundamental flaw" the EDM's 
failure to model segregation of livestock according to origin, which is the fundamental discrimination and cost-imposition caused by the COOL measure.
439 Canada and Mexico note that 
the United States models the removal of compliance costs, which "apply to all animals equally".440 
Canada and Mexico also highlight equations (18)  to (23) in the United States' model which, 
according to Canada and Mexico, respectively, are based on an "inappropriate" or "implausible" assumption: that the impact of the removal of the COOL measure on prices of imported livestock is 
identical to the impact on prices of US-origin livestock.
441 As Mexico states, the requirement to 
differentiate animals "according to their origins impose[s] additional costs that can be averted by using animals of a single origin, which is precisely why the COOL measure has a differential impact 
in the price of imported Mexican cattle. Equations (18) to (23) simply assume away this reality."
442 
6.14.  The United States asserts that an EDM is a more suitable model than econometrics, since it 
takes account of the complexities of the livestock market by specifying individual supply and 
demand curves at all relevant levels of production.443 Additionally, it avoids the problem of variable 
omission which is prevalent in econometric estimations for complex markets.444 Regarding 
differential costs, the United States acknowledges the previous panel and Appellate Body findings but submits that its applied import elasticiti es capture and measure the differential costs.
445 It 
notes that the Informa Report "purport[s]" to provide differential costs.446  However the United 
States also recalls the original panel's doubts ab out the accuracy and verifiability of the Informa 
Report.447 Regarding elasticities, the United States asserts that short run elasticities should be 
used, given that (1) "[t]he elasticities fit the length of time the amended COOL measure has been 
in place", and (2) " the cost wedges used in th e EDM explicitly reflect implementation costs."448  
6.2.2  Analysis by the Arbitrator 
6.15.  As Canada and Mexico point out, unlike econometric estimation, simulation does not rely on 
actual observed data other than for the purposes of establishing baseline values. While we take Canada and Mexico's point that such data, if and when available, should be used, we also see that there may be advantages of not having to do so. As the discussion on the econometric estimation 
in section 5.2 shows, working with actual observed data can require accounting for possible factors 
that may have impacted on price or quantity, which may not be possible, as we have concluded in respect of Canada's econometric quantity estimation. Indeed, Mexico chose to estimate quantity 
through simulation for this reason. Thus, we would not dismiss the use of an EDM solely on the 
grounds that it is a model that does not re ly on actual observed data.         
6.16.  Another concern raised by Canada and Mexico is that an EDM relies on a number of 
assumptions that may not correspond to the reality of the markets or the effects that it simulates 
in those markets. We are not convinced by th is argument. Reliance on a presumption of ceteris 
paribus is not only standard for many economic models, but is also a requirement of an EDM that 
                                               
438 Canada's written submission, para. 83. 
439 Canada's written submission , para. 67-68; Mexico's written submission, para. 25.  
440 Canada's written submission, para . 73. See also Mexico's written submission, para. 26 ("the United 
States' model assumes that the costs of COOL are the same for animals of all origins").  
441 Canada's written submission, para. 72; Mexico's written submission, para. 29.  
442 Mexico's written submis sion, para. 29, Canada argues along th e same lines. See Canada's written 
submission, paras. 72-73. 
443 United States' oral statement, para. 71.  
444 United States' opening statement at the meeting of the Arbitrator, para. 72. 
445 United States' written submission, para. 57. See also  United States' response to Arbitrator question 
No. 26, para. 101.  
446 United States' response to Arbitrator question No. 26, para. 101. 
447 United States' response to Arbitrator question No. 26, para. 101 ("the panel noted that the 'Informa 
Report is silent on its methodology and the sample considered ( i.e., time period, geographical zone, number of 
firms surveyed),' and thus is not 'reliable and precise as  regards its exact quantification of the costs of the 
COOL measure'" (quoting Panel Reports, US – COOL , para. 7.499)).   
448 United States' opening statement at the meeting of the Arbitrator, para. 76. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  aims to isolate the impact of a change in a single variable (in this case compliance costs) at the 
different levels of the supply chain as a result of an economic action (in this case the removal of 
the COOL measure).449 An EDM is a tool that is widely used to assess the impact of a particular 
action, including by previous arbitrators.450  
6.17.  However, we do have some concerns with  respect to one basic assumption of the United 
States' EDM, namely that the displacements are restricted to occur within proximity of the equilibrium. In other words, the removal of the COOL measure is implicitly assumed to have a 
relatively small impact on export price and quantities. As we understand it, the small impact 
assumption is a necessary implication of the way the supply and demand functions have been linearly approximated by the elastici ties. Indeed, the larger the impact actually is, the more likely 
an EDM is to over- or under-estimate the new equilibrium. This is not an issue that can be 
resolved since it is structurally inherent in the model. While this issue alone may not be a sufficient 
reason to discard the United States' EDM completely, it does raise concerns about the accuracy of the EDM in this particular context where it cannot be excluded a priori  that the COOL measure had 
a large impact. 
6.18.  We also note two particular concerns raised by Canada and Mexico regarding the use of 
elasticities, namely: (1) the United States' use of short-run elasticities rather than long-run 
elasticities, and (2) the United States' justification for using wholesale meat import elasticities as a 
proxy for feeder and slaughter livestock import elasticities. On the first issue, it suffices to note that the debate is about two alternative, availabl e options (short or long-run) and, therefore, not 
about precluding the application of an EDM per se . In other words, the choice of short or long-run 
elasticities is an issue that can be resolved, if need be, when deciding subsequently on exactly 
what data inputs would be appropriate. That dete rmination would only take place if the Arbitrator 
were convinced that an EDM would yield a more accurate result than any other method.
451  
6.19.  On the second issue, we share Canada's and Mexico's concerns about using wholesale meat 
import elasticities as a proxy for livestock import elasticities. We note that the United States' choice to use a proxy elasticity is premised on the notion that it is not possible to estimate the 
livestock import elasticities econometrically. However, as has been discussed above in section 
5.2.2.2, it is possible to estimate elasticities through other techniques.
452 It is evident that proxy 
data inputs should be relied on only when more appropriate data are unavailable. We observe that 
it is possible to calculate the export supply elasticities for livestock in the present case; at this 
stage, it remains unnecessary for us to determine the precise elasticities that would be entered 
into an EDM.  
6.20.   This brings us to the last, and in our view, most important point, which is the difficulty of 
properly accounting for the differential compliance costs resulting from the COOL measure. It 
would not be justifiable for us to rely on a model that does not properly account for the discriminatory effects of the COOL measure that have been found in these disputes to exist both 
by the original panel and the compliance panel (and  confirmed in both instances by the Appellate 
Body).
453 Indeed, as noted previously in this Decision, our mandate requires us to determine the 
level of nullification or impairment resulting from the WTO-inconsistency, which in this case turns 
                                               
449 United States' written submission (Canada), para. 30. 
450 Decision by the Arbitrator, US – Upland Cotton (Article 22.6 – US II) , para. 4.2.  
451 As discussed in sections 4.2 and 4.3 above, we view the United States' proposed methodology 
differently than the methodology proposed by Canada an d Mexico. The United States' proposed methodology is 
merely one possible methodology to be  considered by us when making our own determination of the level of 
nullification or impairment.  
452 We note that Mexico in its initial methodology did indeed calculate an export supply elasticity for 
feeder cattle. While we disagree with the specific calcul ation that Mexico undertook (see our conclusion above 
in section 5.2.2.2), we note that there are sufficient da ta available to apply Mexico's formula to calculating a 
revised elasticity for Mexico. In addi tion, as discussed further below, we believe that Mexico's formula could 
also be applied to Canadian livestock categories in order to determine Canada's relevant export supply 
elasticities. Finally, we note that the United States itself acknowledges that, in its literature review of export supply elasticities for Canadian livestock, most of the elasticities were "based on the same methodology that Mexico presents in its paper." Far from contesting Mexico's formula, th e United States acknowledges that 
"[t]he surplus supply (export) elasticity equation Mexi co relied on in its Methodology Paper is a standard 
equation that is reflected in the lite rature." See United States' response to  Arbitrator question No. 46, para. 86. 
453 Appellate Body Reports, US – COOL , para. 257; see also Panel Reports, US – COOL , para. 7.279; US 
– COOL  (Article 21.5 – Canada and Mexico) , para. 7.66. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  exclusively on the COOL measure's detrimental im pact on imported livestock as compared to 
domestic livestock. In particular, the detrimental impact has been identified as resulting mainly 
from (1) differential costs arising from segregation and (2) incentives for processors to use domestic livestock.
454 It would be contrary to our mandate to make a determination of nullification 
or impairment that did not account for these di fferential effects as accurately as possible.  
6.21.   The United States confirms that the costs applied in the EDM model it initially submitted are 
compliance costs that are assumed to be the same "for all entities, whether in the United States or 
elsewhere".455 It argues, however, that: 
[T]he EDM recognizes (and structurally can model) differential impacts [that] are 
present.  The EDM imposes different elasticities for imported and domestic livestock. In particular, the import supply elasticities translate into a differential and more 
severe impact on imported livestock. This difference reflects the differential 
compliance costs imposed on Canadian and Mexican livestock suppliers.
456  
6.22.  We are not convinced by this argument. It is apparent from the United States' own 
statements throughout these arbitration proceedings that costs and elasticities are distinct 
concepts, and that costs are the relevant variable of interest in a correctly specified EDM in this case. The United States correctly states that "the supply of imported animals is more elastic than 
U.S. domestic supply, which means that when COOL  costs are removed, the effect will be greater 
on U.S. import supply than it will be on U.S. domestic supply."
457 However, this greater "impact" 
does not  reflect the differential cost of the COOL measure, only  a differential result based on costs 
that the United States has acknowledged are assumed to be non-differential. Such a cost input 
clearly contradicts the findings of the original panel, the compliance panel, and the Appellate 
Body.458 Consequently, we disagree with the United States that different elasticity values 
accurately capture the differential costs of COOL on foreign producers compared with domestic 
producers.  
6.23.  Differential compliance costs, and more specif ically segregation costs, therefore need to be 
accounted for on their own terms. In response to written questions of the Arbitrator, the United 
States submitted a revised EDM in which the "cost wedge" reflected differential compliance 
costs.459 The data for defining this parameter are taken from the Informa Economics Report, which 
Canada had submitted in the original proceedings and which both Canada and Mexico re-submitted in these proceedings.
460 Leaving aside any concerns with this data source461, we note that Informa 
data only cover differential compliance costs of the original  COOL measure. While the parties have 
acknowledged that the Informa costs do reflect the differential costs resulting from the original COOL measure, no data have been made available to us that would reflect differential costs 
resulting from the amended COOL measure. We recall that the compliance panel found that the 
amended COOL measure "entails increased detrimental impact on imported livestock".
462 The 
differential compliance costs for the amended COOL measure, therefore, cannot simply be 
assumed to be the same as for the original COOL measure. As noted above, we consider that our 
                                               
454 Appellate Body Reports, US – COOL , para. 257; see also Panel Reports, US – COOL , para. 7.279; US 
– COOL (Article 21.5 – Canada and Mexico) , para. 7.66. 
455 United States' response to Arbitr ator question No. 26 ("…the Regula tory Impact Analysis (RIA) costs 
were developed with the understanding that all entities, whether in the United States or elsewhere, would face similar tasks and direct costs regardless of their location ( e.g., the cost of recordkeeping in the United States is 
similar to the cost of recordkeeping in Canada)").    
456 United States' response to Arbitrator question No. 26, para. 100. See also United States' written 
submission, para. 57. (footnote omitted) 
457 United States' response to Arbitr ator question No. 43, para. 74.  
458 Appellate Body Reports, US – COOL , para. 257; see also Panel Reports, US – COOL , para. 7.279; US 
– COOL  (Article 21.5 – Canada and Mexico) , para. 7.66. 
459 United States' response to Arbitrator question No. 26. 
460 Informa Economics, Update of Cost Assessments for Country of Origin Labeling – Beef & Pork (2009)  
(June 2010), (Exhibits CAN-55 and MEX-9). 
461 As the United States correctly points out, the original panel in this dispute stated the following 
concerns: "However, the Informa Report is silent on its methodology and the sample considered (i.e. time 
period, geographical zone, number of firms surveyed).  Accordingly, we cannot assess  with sufficient certainty 
whether the Informa Report is reliab le and precise as regards its exact quantification of the costs of the 
COOL measure." See Panel Reports, US – COOL , para. 7.499.  
462 Panel Reports, US – COOL (Article 21.5 – Canada and Mexico) , para. 7.176. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  mandate requires us to account for the discriminatory effects of the COOL measure as accurately 
as possible. Therefore, the practical impossibility to  do so in the EDM due to the lack of relevant 
data is reason enough for us not to use the EDM.  
6.24.  In sum, we note that the fact that the EDM does not rely on actual observed data, but 
rather on simulation, may well be an advantage, particularly in situations where methodologies 
using actual observed data cannot fully account for all factors that impact price or quantity. Making use of that advantage, however, entails having to make a number of assumptions, at least one of 
which (namely the small impact assumption) we consider to be potentially problematic in this 
case. It would also require resolving concerns related to the elasticities to be used for the products detrimentally impacted, namely livestock. However, the most important aspect that weighs against using the EDM is that there are no data to acco unt for the differential costs of the amended COOL 
measure for imported livestock.  
6.25.  For the foregoing reasons, and in particular the lack of data accounting for the 
discriminatory effects of the COOL measure, we rule out use of the United States’ EDM for the 
purposes of our own determination. 
6.3  Arbitrator's own calculation of nullification or impairment 
6.26.  In this section we describe the approach that we consider best suited to determine the level 
of nullification or impairment as accurately as possible, based on our findings and considerations 
regarding the three parties' methodologies. It is because we are unable to accept aspects of their methodologies that we now proceed with our own ca lculations in order to fulfil our mandate under 
the DSU. Applying this approach, we make our ow n determination of the level of nullification or 
impairment incurred by Canada and Mexico. The actu al calculations are set out in Annex C to this 
Decision.  
6.3.1  Overview of the methodological approach 
6.27.  In accordance with our finding above in section 5.1, we measure Canada's and Mexico's lost 
export revenues. We do so by using Canada's and Mexico's basic formula which defines the export revenue loss as the difference between the export  revenue with and without the COOL measure. 
To calculate the counterfactual revenue ("without the COOL measure"), like Canada and Mexico we 
estimate price and quantity separately. 
6.28.  In estimating price and quantity, we follow Mexico's two-stage approach. Thus, we first 
estimate the price change and then derive the quan tity effects from that price change by way of 
an elasticity-based simulation.  
6.29.  Our price estimation, in line with Canada's and Mexico's approach, is based on an 
econometric estimation of the impact of the COOL measure on the price basis. As seen above, we 
consider that the impact of transport costs needs to be accounted for in Canada's price basis 
estimation (whereas this is not necessary in Mexico's price basis estimation as Mexico uses the direct price of Mexican cattle in the United States). We, therefore, include a transport variable in 
the price basis estimation for Canada only. Furthermore, with regard to both Canada's and 
Mexico's price basis estimation, we control for omitted variable bias by focusing on the variables discussed above in sect ion 5.2.1.2.    
6.30.  In respect of the quantity estimation, we calculate new elasticities both for Mexico, whose 
elasticity figure we rejected in section 5.2.2.2 above, and for Canada, whose proposed elasticity 
figures we cannot accept for reasons further discussed below. We use the formula that all parties in this arbitration have recognized as appropriate to calculate export supply elasticities. In applying 
this formula, we need to decide on whether to use long-run or short-run elasticity values.
463 We 
note that long-run elasticities account for the pe riod necessary for "full adjustment" from a given 
                                               
463 The question of long-run versus sh ort-run was also relevant in the co ntext of applying elasticities in 
the EDM. However, as we decided not to rely on the EDM,  we did not need to decide on the use of short-run or 
long-run elasticities, nor did we need to address the implications of the counterfactual in that context. See 
section 6.2 above.       WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  change, whereas short-run elasticities reflect incomplete adjustment in the period immediately 
following the change.464  
6.31.  We are conscious that this question is tied to the counterfactual. In essence, the difference 
between long-run and short-run lies in reading "without the COOL measure" as meaning "as if the 
COOL measure had never existed" (long-run) or meaning "as if the COOL measure had been 
withdrawn at the end of the RPT" (short-run). We  note that the United States did not contest 
Mexico's long-run approach and that Mexico did not rebut the United States' repeated assertions 
that the counterfactual concerned "the measure withdrawn".465  
6.32.  For purposes of our own determination, we follow the counterfactual of the COOL measure 
having been withdrawn at the end of the RPT. We note that this is consistent with the approach 
adopted by previous arbitrators.466 Therefore, we apply short-run elasticities to simulate the 
a d j u s t m e n t  o f  l i v e s t o c k  e x p o r t  q u a n t i t i e s  i n  the baseline year following the counterfactual 
withdrawal of the COOL measure (and its econom etrically estimated export price impacts) in 
May 2013.    
6.33.  We set out below the details of our model specifications and data that we use to calculate 
the level of nullification or impairment. 
6.3.2  Price basis estimation  
6.34.  In order to estimate econometrically the im pact of the COOL measure on the price basis, we 
specify the dependent variable – the price basis – in a dynamic model. This is the same approach used by both Canada and Mexico in their analyses  of the effect of the COOL measure on the price 
basis. As mentioned on several occasions throughout this Decision, Canada and Mexico define the 
price basis differently. Canada defines the price basis as the difference between the export price of 
                                               
464 We also refer to the descript ion used by the arbitrator in  US – Upland Cotton (Article 22.6 – US II) , 
which is as follows:  
[T]he concepts of short-run and long-run relate to the process of economic adjustment arising 
from the exogenous change in the economic environment. The long-run essentially refers to a situation where all adjustments by producers, cons umers, and owners of factors of production to 
the given change have been completed and the market has settled down to a (long-run) equilibrium. The short-run refers to a situation,  which could be one of (short-run) equilibrium, 
where the process of adjustment by producers, consumers and owners of factors of production 
has not been fully completed. This less than complete adjustment in the economy may be the 
result of certain rigidities in the market or simp ly that it takes time for producers to re-allocate 
resources. (See Decision by the Arbitrator, US – Upland Cotton (Article 22.6 – US II) , para. 
4.144) 
465 Mexico describes the counterfact ual in the following terms: "if the COOL measure had not been 
adopted" and "if the COOL measure was never in place" , Mexico's methodology pape r, Pouliot Study, p. 3; 
"had never been implemented", Mexico's methodology pa per, Pouliot Study, p. 16. We note that Mexico 
requested authorization from the DSB to suspend concessions equal to "the nullification or impairment of benefits accruing to Mexico, resulting from the United States' failure to bring its COOL measure in compliance 
by 23 May 2013 or otherwise comply with the recommenda tions and rulings of the DSB". WT/DS386/35, p. 2. 
The United States describes the coun terfactual in the following terms:  
"The appropriate counterfactual is not, as Cana da suggests, a comparison between a baseline 
period and what the level of trade would be 'if no WTO-inconsistent  COOL requirements had ever  
been applied by the United States.' A Member whose measure has been found to be inconsistent 
with a covered agreement is to bring that measure into conformity. And a Member may have a reasonable period of time in which to do so . The Member is not required to restore the status quo  
as it existed prior to the adoption of the meas ure. Rather, the appropriate counterfactual is one 
where the amended COOL measure is brought in to conformity." See United States' opening 
statement at the meeting of the Arbitrator, para. 8. (emphasis original)  See also Canada's description of the counterfactual: "but for the amended COOL measure", Canada's 
methodology paper, Sumner Study, para. 6; "if the am ended COOL measure had not been in place", Canada's 
methodology paper, Sumner Study, para. 12; "without  the amended COOL measur e", Canada's methodology 
paper, Sumner Study, para. 17.  
466 See Decision by the Arbitrators,  EC – Hormones (US) (Article 22.6 – EC) , para. 38. We also note that 
the arbitrator in US – Upland Cotton (Article 22.6 – US II)  also considered the use of short-run elasticities as 
appropriate, albeit under the different  legal standard of Article 7.10 of th e SCM Agreement, which requires the 
arbitrator to establish whether the proposed "counter measures are commensurate with the degree and nature 
of the adverse effects determined to exist". See Decision by the Arbitrator US – Upland Cotton (Article 22.6 – 
US II) , para. 4.147. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  Canadian livestock in Canada and the price of United States' livestock in the United States467, while 
Mexico defines the price basis as the difference between the price of exported Mexican livestock in 
the United States and the price of United States' livestock in the United States.468 As a result, our 
specification of Mexico's price basis will be slightly different from Canada's specification to reflect 
this different definition.  
6.3.2.1  Canada's pric e basis specification 
6.35.   We estimate the effect of the COOL measure on the price basis using the following linear 
regression equation: 
 t tUS t CAN t tUS t CAN e P P COOL COOL Z P P       1, 1, 2 1 , , 2 1     
 
where PCAN,t is the  price of Canadian livestock exported to the United States at time t, PUS,t is the 
livestock price in the United States at time t, COOL1 is a dummy (that is a variable taking the 
value of 0 or 1) for the original COOL measur e, and COOL2 is a dummy for the amended COOL 
measure. We define these dummy variables as they are defined in Canada's regressions, namely: COOL1 takes a value of 1 after 29 September 2008; COOL2 takes a value of 1 after 23 May 2013 for small size feeder cattle and for feeder pi gs, after 1 July 2013 for intermediate-size feeder 
cattle, and after 2 November 2013 for fed cattle and fed hogs. Finally, e
t is the random error term.  
6.36.  Zt is a vector of control variables. Like in Canada's specification, we include monthly 
dummies to control for seasonality, and for changes in the exchange rate, as well as dummies for 
Canadian cattle-specific events (such as the BSE) and dummies in the equations for Canadian pigs 
for the closure of a hog processing plant. 
6.37.  Our set of control variables also includ es a number of additional variables to address 
concerns regarding variable omission. As explaine d in section 5.2.1.2, we are of the view that 
transport costs are a relevant variable in the dete rmination of the price basis, when the price basis 
is measured as the difference between the export price in Canada and the US price. Therefore, in our econometric model for Canada, we use transport costs as an explanatory variable. We 
acknowledge that the variable of transport cost presents a unit root.
469  We are aware that one 
option to solve the problem is to consider the variable in first difference (that is, using a measure of the variation of transport costs rather than the level of transport costs). However, taking 
transport costs in first difference, while solving the unit root problem, would not yield a useful 
interpretation because the level (not the first difference) of transport costs is a direct determinant of trade barriers measured by the price basis. Hence, we estimate a model with a non-stationary 
explanatory variable, keeping in mind that this may affect the statistical significance of regression 
coefficients, but relying on the fact that "the presence of variables with a unit root does not bias regression coefficients".
470 
6.38.  In addition, we include variables to control for changes in transport costs, the recession, 
changes in feed costs and in the level of competin g imports, drought events as well as the spread 
                                               
467 See, e.g. Canada's response to Arbitrator questi on No. 6, para. 18 ("Canada uses prices in Canada 
(rather than those within the United States) for estimating price basis impacts because those data ensure that the econometric specification used by Canada most ac curately estimates the impact of the amended COOL 
measure on the prices of livestock in Canada."). 
468 See, e.g. Mexico's opening statement at the meeting of the Arbitrator, para. 15 ("The estimate of the 
COOL measure's impact on the price of Mexican feeder cattle exported to the United States uses a basis 
calculated as the difference in the price of Mexican feeder cattle measured in the United States and the price paid for U.S. feeder cattle in the United States."). 
469 See United States' response to Arbitrator Question No. 35, para. 42. 
470 S. Pouliot and D. Sumner, "Differential impacts of country of origin labelling: COOL econometric 
evidence from cattle markets", Food Policy , Vol. 49 (2014), (Exhibit USA-35), p. 113. We also refer to the 
published econometric book by Bane rjee, Dolado, Galbraith and Hendry, Co-Integration, Error Correction, and 
the Econometric Analysis of Non-Stationary Data  (Oxford University Press, 1993), where the authors, referring 
to models with a stationary depe ndent variable and non-stationary independent variables as unbalanced 
regressions, write: "The mere fact that a regression is unbalanced may not be a matter of concern; for 
example, ADF statistics are computed from models th at, in this terminology, are unbalanced. They are 
nonetheless valid tools for inference as long as the corre ct critical values are used." See p. 166. In order to 
ensure that our findings are robust, we also estimated a model where tran sport costs were only included in 
first difference. The results of those estimations are in line with those where transport costs are in levels. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  of the Porcine Epidemic Diarrhea virus (PEDv). As explained in section 5.2.1.2, we include these 
variables to account for the possibility that arbitrage takes time and that there may be changes in 
economic conditions that are reflected in the price basis. We introduce these control variables in first difference primarily to capture the fact that the change in such variables (e.g. proxies for 
recession) is the shock that is the relevant potential impact on price basis, rather than the level of 
such variables. Furthermore, first differences help us to overcome the problem of unit roots in the variables. We limit the set of control variables to those for which the parties have provided data 
sources and which have been discussed in the context of this arbitration.
471  
6.39.  We run the regressions for all categories of livestock, namely feeder and fed cattle, feeder 
pigs, and slaughter hogs. The regressions for feed er animals are run by weight categories for 
feeder cattle (450lb, 550lb, 650lb, 750lb, and 850lb) as well as for feeder pigs (smaller than 7kg 
(10-12lb) and between 7kg and 23kg (40lb)). For each regression, we calculate the long-run 
impact of COOL on the price basis, which corre sponds to the long-term impact of the COOL 
measures on export price 472: 

12 1Pe  
6.40.  As the regressions for feeder cattle and pigs are estimated for different weight categories, 
we take the weighted average of the estimated impact of the COOL measure across the different weight categories according to the share of each weight category in total imports of feeder cattle and pigs, respectively.
473 W e  c o n s i d e r  t h i s  a p p r o a c h  t o  b e  m a t h e m a t i c a l l y  s o u n d  a n d  m o r e  
accurately reflective of the price impact according to the specific import shares of traded 
livestock.474  
6.3.2.2  Mexico's price basis specification 
6.41.  The dynamic model we rely upon to explain the price basis of feeder cattle for Mexico is 
specified as:  
 t tUS t MEX t tUS t MEX e P P COOL COOL X P P       1, 1, 2 1 , , 2 1     
where PMEX,t is the price of Mexican feeder cattle exported to the United States at time t, PUS,t is the 
price of feeder cattle in the United States in month t, COOL1 is dummy for the original COOL 
measure (taking a value of 1 as of September 2008), COOL2  is dummy for the amended COOL 
measure (taking a value of 1 as of May 2013). X is the vector of control variables that in the case 
of Mexico includes monthly dummies for seasonality and proxies for drought events, transport 
costs, recession, feed costs, and competing imports. Just as for Canada, all control variables are in 
first differences.  
6.42.  We run the regressions for feeder cattle by weight category (550lb and 750lb) and calculate 
the long-run impact of the COOL measure on the price basis. Since the regressions for feeder 
                                               
471 See section 5.2.1.2 above. 
472 We note that long-run calculat ions represent full adjustment in both econometric estimations and 
elasticity-based simulations. In our econometric determination of the COOL impact, the full adjustment of the 
price basis to the introduction of the COOL measure takes place in the span of a few months. This is why we compute the long-run impact of the COOL measure on the price basis. By contrast, long-run elasticities 
generally refer to a much longer time-p eriod. As discussed by the parties, th is is generally a pe riod of 10 years. 
This is why we will use short-run elasticities to estimate the quantity effects of the COOL measure. See parties' responses to Arbitrator question No. 41. 
473 Trade data to compute the weighted share is taken from the US International Trade Commission 
(https://dataweb.usitc.gov/ ). Note that no weighted average is comp uted for fed (slaughter) livestock as the 
price basis is not specified for different weig ht categories unlike feeder livestock.  
474 This approach is similar to Canada's use of trade weights in calculating the average effect of COOL on 
feeder pig prices according to the resp ective shares of trade for different sizes of feeder pigs (i.e. weanlings 
and larger feeder pigs). WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  cattle refer to two weight categories, we aver age the estimated impact of the COOL measure 
across categories in the same way as we do for Canada's feeder ca ttle (and feeder pig).475  
6.3.2.3  Data for pric e basis estimation  
6.43.  As the parties have mentioned on various occasions during these proceedings, data 
availability is key in order to estimate econometrically the impact of the COOL measure on the 
price basis. Unless specified otherwise, the data used in the econometrics are taken from the various exhibits submitted by the parties.  
6.3.2.3.1  Data used fo r Canada's estimation  
6.44.  In its methodology paper, Canada proposes to estimate the impact of COOL on the price 
basis expressed in Canadian dollars for all livestoc k, with the exception of feeder pigs for which 
prices are expressed in US dollars. For purposes of our calculations, we consistently express the 
Canadian price basis for all livestock in Canadian dollars.  
6.45.  We use weekly information when data are av ailable. The United States argues that "the use 
of th[ese] data is inappropriate because of the sign ificant 'noise' associated with using weekly data 
instead of monthly data".
476 However, we agree with Canada that "random noise in the dependent 
variable in a regression model tends to drive es timated coefficients towards zero, not make them 
seem larger and more significant".477 Therefore, we do not believe that this argument undermines 
the use of weekly data, especially when consid ering that, to the extent that markets react 
relatively quickly to changes in economic conditions, using weekly information is preferable to the use of monthly information because it allows a more timely account of market changes. The latter option would decrease the explanatory power of econometric estimations. In addition, the use of 
weekly data is likely to reduce the risk of multicollinearity. However, as price data for Canadian 
feeder pigs are only available monthly, for f eeder pigs we use monthly data for all control 
variables. 
6.46.  As proxies for our control variables, we use: (a) diesel price to control for transport costs; 
(b) monthly differences between US and Canadian unemployment rate to control for recession
478; 
(c) a US recession dummy variable; (d) corn near-term future prices for feed costs; (e) the 
percentage of area subject to a moderate to seve re drought in Texas to control for drought events; 
(f) 12-months lag of a 4-week moving average of PE Dv cases to control for the spread of the PEDv 
disease; and (g) US imports from Mexico to control for competing imports.  
6.47.  Our choice as to which specific measure of each variable to use was partially dictated by the 
quality of the data. For example, we prefer data on diesel prices479 to the PPI index submitted by 
Canada480 (as a measure for transport costs) because the information on the PPI index is only 
available monthly while the information on diesel prices is available weekly. Canada transforms the 
PPI index into weekly data using a statistical procedure (Loess regression).481 But it is our view 
that data obtained in this way are more likely to be subject to measurement errors than weekly information. We therefore use weekly data on diesel prices.
482 Regarding the economic recession, 
we opt for using a measure of unemployment to control the large changes in economic conditions 
during the recession starting in 2008. We also use the recession dummy submitted by the United 
States to further control for the economic recession that coincided with the introduction of the 
                                               
475 Trade data to compute the weighted share is taken from the US International Trade Commission: 
https://dataweb.usitc.gov/ .  
476 United States' written submission, paras. 108-109. 
477 Canada's written submission, para. 53. 
478 Monthly data on the (seasonally adjusted) unemploym ent rate of individuals 16 years and over in the 
United States is taken from the US Bureau of Labor Statistics: http://data.bls.gov/timeseries/LNS14000000 . 
The monthly data on the (seasonally adjusted) unemployme nt rate of individuals 15 years and over in Canada 
is taken from Statistics Canada: http://www5.statcan.gc.ca/ . 
479 We note that the United States submitted monthly data for diesel price (Exhibit USA-61B). 
480 Weekly cattle data used  for regressions with variables, (Exhibit CAN-68). 
481 S. Pouliot and D. Sumner, "Differential impacts of country of origin labelling: COOL econometric 
evidence from cattle markets", Food Policy , Vol. 49 (2014), (Exhibit USA-35), pp. 107-116. 
482 Weekly data are taken from the US Energy Information Administration: 
http://www.eia.gov/dnav/pet/ pet_pri_gnd_dcus_nus_w.htm. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
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  original COOL measure, and in order to avoid attribution of the impacts of the recession to the 
COOL measure. 
6.48.  The econometric analysis of Canadian feeder and fed cattle covers the period from 
September 2005 to mid-January 2015, while that for feeder pigs and fed hogs covers the period 
from December 2003 to mid-January 2015. This reflects the lack of price information for the period 
before 2005 for Canadian cattle during the BSE crisis.  
6.3.2.3.2  Data used for Mexico's estimation 
6.49.  Mexico's estimate of the impact of COOL on the price basis relies on monthly price data. 
However, weekly data are also available. As we  explained above, we generally prefer to use 
weekly data when they are available because they  better allow one to account for timely reactions 
to economic changes. For this reason, and for the sake of consistency with Canada's estimations, 
we use weekly data throughout to estimate the impact of the COOL measure on Mexico's price 
basis.483  
6.50.  Mutatis mutandis , we use the same data for Mexico that we use for Canada. Thus, we use 
US imports from Canada to control for competing imports. 
6.3.2.4  Econometric results for price basis 6.51.  Once the database with the relevant va riables has been constructed, the model can be 
estimated econometrically. Both Canada and Mexico apply the same econometric estimator: the 
ordinary least squares (OLS) estimator. OLS estima tes the parameters of the explanatory variables 
that best fit the data by minimizing the mean of the squared residuals. A residual is defined as the 
difference between an observed value of the depe ndent variable and the estimated value of the 
dependent variable (fitted value) provided by  the estimated parameters of the explanatory 
variables. We report below the results of our ec onometric estimations of the effect of the COOL 
measure on the price basis and, therefore, on prices.  
6.3.2.4.1  Canada's econom etric estimation results  
6.52.   Table 1 displays the estimated long-term effects of the COOL measures on Canadian price 
basis for the various categories of feeder cattle, fed cattle, feeder pigs, and fed hogs. 
Table 1: Canada's price basis econometric results 
 Long-term impact of the 
COOL measure on price basis P-value484 
450 lb feeder cattle -0.361 0.000 
550 lb feeder cattle -0.340 0.000 
650 lb feeder cattle -0.188 0.000 
750 lb feeder cattle -0.150 0.000 
850 lb feeder cattle -0.107 0.000 
Feeder cattle (weighted average)485 -0.260 - 
                                               
483 In its methodology paper, Mexico computes a monthly average price for 350lb and 550lb feeder 
cattle using weekly price data. Mexic o's methodology paper, Pouliot Study, pp. 9-10. We use these weekly data 
in our analysis. 
484 The p-value evaluates how well the sample data support the null hypothesis that the long-run impact 
of the COOL measure on the price basis is equal to zero. A small p-value (typically ≤ 0.05 or 0.10) indicates 
strong evidence against the null hypothesis, i.e. that th e long-run impact of the COOL measure on the price is 
statistically different from zero. Conversely, a large p-value (> 0.05 or 0.10) indicates weak evidence against the null hypothesis which cannot be rejected, i.e. that th e long-run impact of the COOL measure on the price is 
statistically not different  from zero. Greene, W.H. Econometric Analysis , 4th edn (Prentice Hall, 2000). 
485 The following import share weights, based on 2014 trade data, have been used: 41 per cent for 
feeder cattle weighing 90kg or more but less than 200kg (198lb – 441lb) and 59 per cent for feeder cattle weighing 200kg or more but less than 320kg (441lb – 705lb). WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
- 73 - 
 
   Long-term impact of the 
COOL measure on price basis P-value484 
Fed cattle  -0.084 0.002 
10-12 lb feeder pigs -5.875 0.042 
40 lb feeder pigs -23.1563 0.015 
Feeder pigs (weighted average)486 -9.158 - 
Fed hogs -0.079 0.000 
 
6.53.  The detailed results of these regressions are reported in Annex C. The results are robust to 
alternative specifications and proxies, including those proposed by the United States and Canada. As reflected in Annex C, some regressions for feeder cattle yield statistically non-significant 
coefficients for the original COOL measure.
487 We note that the overall COOL impact on the price 
basis is negative and statistically significant for all weight categories. This impact encompasses both the original and amended COOL measures, the cumulative impact of which is the variable of 
interest. 
6.3.2.4.2  Mexico's econometric results  6.54.   Table 2 reports the estimated long-term effects of the COOL measures on Mexican price 
basis for the various weight categories of feeder cattle. 
Table 2: Mexico's price basis econometric results 
 Long-term impact of COOL 
measure on the price basis P-value 
350 lb feeder cattle -0.154 0.000 
550 lb feeder cattle -0.098 0.000 
Feeder cattle (weighted average) 488 -0.121 - 
 
6.55.  The detailed results of our estimations for Mexico are reported in Annex C. The results are 
robust to alternative specifications and proxies, including those proposed by the United States and Mexico. 
6.3.3  Elasticity-based simulation of the change in export quantities 
6.56.  Having estimated the impact of the COOL  measure on the price basis, and thus on the 
export price (i.e. ∆P), we can move to the second step which consists of simulating the 
corresponding impact of the COOL measure on export volumes using the elasticity of export 
supply. The elasticity of export supply measures how the quantity of exports responds to changes 
in the export price. In mathematical terms, the ex port supply elasticity represents the slope of the 
                                               
486 The following import share weights, base d on 2014 trade data, have been used: 81.2  per cent for 
feeder pigs weighing less than 7kg (15lb) and 18.8  per cent for feeder pigs weighing between 7kg and 23kg 
(15lb – 71lb). 
487 We note that Canada provided a rationale, unrebut ted by the United States, as to why the original 
COOL measure resulted in "muted" price effects until the adoption of the amended COOL measure. Canada 
explains in respect of its own calculations that:  
In the case of the price differe nce regression for feeder cattle , the problematic issue was that 
around the time of the original COOL measure, U.S. cattle feeding operations responded primarily by cutting back dramatically in offering to buy Canadian feeder cattle. There was much uncertainty about the implementation and that meant many feeder cattle that would have been exported but for the original COOL measure rema ined in Canada. Since there was capacity in 
Canada to feed these cattle, th e result was that the price did not fall and, given other price 
trends in the data at the time, the model estimates a positive coefficient rather than a coefficient of zero or slightly negative. By 2013, the market  had adjusted to the original COOL measure. 
(Canada's methodology paper, Su mner Study, paras. 129-130.) 
488 The following import share weights, based on 2014 trade data, have been used: 40.7 per cent for 
feeder cattle weighing 90kg or more but less than 200kg (198lb – 441lb) and 59.3  per cent for feeder cattle 
weighing 200kg or more but less than 320kg (441lb – 705lb). WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
- 74 - 
 
  supply curve and is defined as the ratio between th e percentage change in export quantity and the 
percentage change in export price. 
6.57.  As explained in greater detail in section 5.2.2.2489, the impact of the COOL measure on 
export quantity ( ∆Q) can be estimated as the product of (i) Canada/Mexico's export supply 
elasticity ( εe); (ii) Canada/Mexico's export quantity in the baseline period ( Qc); (iii) the change in 
Canada/Mexico's export price caused by the COOL measure, as estimated econometrically ( ∆P); 
and (iv) the inverse of Canada/Mexico's export price in the baseline period (1/ Pc):  
cc ePPQ Q  
6.3.3.1  Export supply elasticity 
6.58.  The only information missing at this stage is the value of Canada/Mexico's export supply 
elasticity. As noted by all parties, export supply el asticity can be expressed as a function of three 
variables: (i) supply elasticity in the domestic market of livestock ( εs); (ii) demand elasticity in the 
domestic market of livestock ( η); and (iii) the export share of livestock in the domestic supply ( ω): 

 1s
e   
6.59.  The level of the export supply elasticity ca n therefore be derived with relevant information 
on Canada's and Mexico's (i) export shares in their respective domestic livestock markets and (ii)  own price elasticities for livestock supply and demand. These parameters are discussed in greater 
detail below. 
6.3.3.2  Export shares of livestock 6.60.  A key parameter required to compute the export supply elasticity is the export share of total 
domestic supply. Calculating the export share ther efore requires information on the export volume 
in the numerator and the total supply/production in  the denominator. We note that computing this 
share is not straightforward because it requires comparing, in theory, the export and supply of 
homogeneous categories of livestock. For exam ple, the export share of fed cattle should 
correspond to the ratio between fed cattle exported  for meat production and the supply of fed 
cattle for meat production. However, trade data do not completely distinguish between fed livestock exported for meat production and those exported for breeding purposes.
490 Similarly, 
data on the annual supply of livestock do not distinguish between fed and feeder livestock destined 
for meat production (as opposed to breeding or other purposes).  
6.61.  Each of the parties developed their own a pproaches to estimate the total supply of a given 
type of livestock (fed/feeder), some of which le ad to different results. As discussed in section 
5.2.2.2, Mexico derives the tota l supply of feeder cattle as the annual beef calf crop using a 
number of assumptions, including that only a certain percentage of annual calf production is eligible for export.
491 Under these assumptions, Mexico concludes that the export share of feeder 
cattle is 75 per cent. Mexico further explains that altering these assumptions results in export 
supply elasticities for feeder cattle ranging between 2.82 and 14.77.492 Alternatively, Mexico also 
considers the total cattle population as a measure of Mexico's livestock supply, which results in an 
export share of 4.4 per cent.493 The difference between an export share of 75 per cent and 4.4 per 
cent results from how Mexico defines total supply in the two cases. In the former case total supply is only the estimated supply of the breed that is "generally" exported, whereas in the latter case it 
is the total supply of cattle (this includes cattle of different breeds, beef cattle, dairy cattle, and 
new-born calves as well as cattle born in previous years). 
                                               
489 See Mexico's methodology paper, Pouliot Study, p. 17, equation (5). 
490 Canada's response to Arbitrator question No. 31, para. 87; Canada's comment on United States' 
response to Arbitrator question No. 46, para. 98. 
491 Mexico's methodology paper,  Pouliot Study, pp. 18-21. 
492 Mexico's response to Arbitrator  question No. 18, paras. 56-60. 
493 Mexico's response to Arbitrator  question No. 31, paras. 87-88. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
- 75 - 
 
  6.62.  Canada approximates the total production  of fed cattle/hogs in Canada as the sum of 
Canadian slaughter cattle/hogs and exports of feeder and fed cattle/pigs and hogs.494 Canada 
further assumes that the total production of feeder cattle/pigs is equal to the total production of fed cattle/hogs under the assumption that the numbers of cattle/hogs slaughtered are roughly 
steady over time.
495 The United States proposes two different measures of total production of 
livestock, namely (a) calf/pig crop production and (b) the sum of livestock slaughter and exports of feeder or fed livestock, which yield different estimates of the export share.
496  
6.63.  At the outset, we note the difficulty in estimating the total supply of a given type of 
livestock without making a number of assumptions. Ideally, one would want to include calf/pig crop production (new born livestock) that are eligible for export and livestock born in previous years that have become eligible to be exported in  the current year. However, available data do not 
allow us to have a precise figure for total suppl y defined in this manner. We understand that the 
parties, in deriving export shares for the purpos e of export supply elasticities have approximated 
total supply alternatively as: (a) the total population of livestock; (b) the share of the livestock 
population that is eligible for export; (c) total new born livestock in a year; or (d) total livestock 
demand (i.e. total slaughtered plus exported feed er and fed livestock). We also note that the 
parties have not challenged as erroneous any particular way of calculating export shares.
497 We 
also stress the importance of ensuring that th e numerator and the denominator of the export 
share are as consistent and homogenous as possibl e. In light of the foregoing uncertainties, we 
decide to calculate export supply elasticities as an average across the several export supply elasticities that can be derived using the various proposed export shares (as set out in Annex C).   
6.3.3.3  Domestic supply and dema nd elasticities for livestock 
6.64.  The remaining parameters necessary to compute the export supply elasticity are estimates 
of domestic supply and demand elasticities for livestock. While elasticities are usually estimated 
econometrically, all parties suggest, because of data constraints, the use of supply and demand 
elasticity estimates published in peer-reviewed academic literature.
498 We follow this approach and 
explain below what sources and which supply and demand elasticities for livestock we use to 
estimate the various export supply elasticities.  
6.3.3.3.1  Short-run elasticities 6.65.  As explained above, we decide to use short- run export supply elasticities on the basis of the 
relevant counterfactual. As a result, only short-run domestic supply and demand elasticities are 
relevant to compute the short-run export supply elasticities. We therefore reject all the long-run 
export supply elasticities values proposed by Canada and Mexico on the grounds that these elasticities were computed using long-run US supply and demand elasticities.
499 We also reject the 
short-run elasticity for Mexican feeder cattle comput ed by the United States due to an error made 
by the United States in computing the value for Mexico's short-run export supply elasticity for feeder cattle, by mixing the short-run supply elasticity for US feeder cattle with a long-run supply 
elasticity for US feeder cattle.
500   
6.3.3.3.2  Data availability and proxies 6.66.  All parties note that supply and demand elasticity estimates for Canadian/Mexican livestock 
are not available. As a solution, all parties propose to use US supply and demand elasticity 
estimates as proxies. Canada explains that the estimates of the United States' domestic supply 
                                               
494 Canada's response to Arbitrator question No. 31, pa ras. 92 and 95. 
495 Canada's response to question No. 31, paras. 87, 90, 92, and 95. 
496 United States' response to Arbi trator question No. 31; Market Share Data, (Exhibit USA-51); United 
States' response to Arbitrator question No. 47. 
497 Although the parties do not contest the definition of  the export share, Canada and the United States 
discussed which type of data to use for its calculation. See Canada's comm ents on the United States' response 
to Arbitrator question No. 46, para. 98; United States' comments on Canada's respon se to Arbitrator question 
No. 46, para. 77. 
498 United States' written submission , para. 44; Mexico's methodology paper, Pouliot Study, p. 18.  
499 Canada's response to Arbitrator question No. 46, para. 223; Mexico's methodology paper, Pouliot 
Study, pp. 19-21. 
500 United States' response to Arbitrator question No. 18, para. 74 and footnote 99. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
- 76 - 
 
  and demand elasticities can be used for Canada because production and market conditions are 
similar.501 Similarly, Mexico argues that the estimate s of US demand and supply elasticities are 
reliable values of Mexican feeder cattle elasticities.502 Although it would have been preferable to 
use direct estimates for Canada's and Mexico's demand and supply elasticities, we agree with the 
parties that using US elasticities is justified by the level of integration of the North American 
livestock market.  
6.67.  All parties refer to Tonsor et al. (2015) which reports short-run and long-run US supply and 
demand elasticity values for feeder and fed cattle, and for fed hogs published in and/or vetted by 
peer-reviewed academic literature.503 Mexico refers also to the US demand elasticity for feeder 
cattle estimated in Marsh (2003)504 which is consistent with the long-run elasticity listed in Tonsor 
et al. (2015). Additional supply and demand elastici ty values have been proposed by Canada and 
the United States.505 
6.68.  Canada considers the demand elasticity of Canadian fed cattle to be equal to the 
US demand elasticity for wholesale beef imports reported in Tonsor et al. (2015). Canada also 
uses the US demand elasticity for fed cattle listed in Tonsor et al. (2015) as the demand elasticity 
for Canadian feeder cattle.506 The United States contests the use of these values on the grounds 
that Canada mismatched these estimates reported in Tonsor et al. (2015).507 We note that Canada 
did not provide any explanations as to why the dema nd elasticity of Canadian feeder and fed cattle 
could be respectively replaced by the US demand elasticity for fed cattle and for wholesale beef imports. We therefore reject the use of these demand elasticities proposed by Canada.  
6.69.  With respect to feeder cattle, the United States also refers to the short-run supply and 
demand elasticities for Canadian feeder cattle reported in Hamilton (1991).
508 Canada criticizes the 
use of the elasticity estimates reported in Hamilton (1991) on various grounds, including the fact that Hamilton (1991) is an unpublished thesis that reports these elasticity parameters from 
another unpublished report, and the United States did not correctly report the estimates, which 
                                               
501 Canada's response to Arbitrator question No. 46, para. 222. 
502 Mexico's methodology pape r, Pouliot Study, p. 19. 
503 G. Tonsor, T. Schroder, and J. Parcell,  "Economic Impacts of 2009 and 2013 U.S. Country-of-Origin 
Labeling Rules on U.S. Beef and Pork Markets",  Project Number AG-3142-P-14-0054 R0, Final Report 
submitted to the USDA Office of the Chief Economist, (26 January 2015) (Exhibit MEX-2, Appendix A to Appendix 15). 
504 J. M. Marsh, "Impacts of De clining U.S. Retail Beef Demand on Farm-Level Beef Prices and 
Production", American Journal of Agricultural Economics , Vol. 85 (November 2003), (Exhibit MEX-2, Appendix 
8), pp. 902-913. 
505 In addition to reporting US suppl y and demand elasticity estimates, the United States provided a list 
of alternative export supply elasti city estimates for Canadian feeder pigs taken from Wohlgenant, "Market 
Modeling of the Effects of Adoption of New Swine Wa ste Management Technologies in North Carolina" (July 
2005), (Exhibit USA-30) (hereinafter "Wohlgenant (2005)"); for Canadian fed hogs taken from a study by the USDA Grain Inspection, Packer and Stockyards Admi nistration (GIPSA) (taken from Exhibit USA-75 and 
hereinafter "USDA GIPSA Meat Marketing Study (2007)") , and from the National Pork Board, "An Economic 
Analysis of the Effectiveness of the Pork Checkoff Pr ogram", Final Report (February 2007), (Exhibit USA-76); 
and for Canadian fed cattle taken from Brester et al.,  "Evaluating the Impacts of  the U.S. Department of 
Commerce's Preliminary Imposition of Tariffs on U.S. Im ports of Canadian Live Cattle", Research Discussion 
Paper No. 34 (August 1999), (Exhibit USA-59) (hereinafter "Brester et al. (1999)"). See United States' response to Arbitrator question No. 46, para. 86.  
Canada raises a number of issues regarding these ex port supply elasti cities, including the fact that 
these elasticities have been computed using dated export shares. See Canada's comments on United States' response to Arbitrator question No. 46, paras 92-93. We agree with Canada and discard the export supply 
elasticities listed above on the grounds that: (i) the export shares used are out-of-date in the case of 
Wohlgenant (2005), (ii) the assumption used in GIPSA that import supply is twice as elastic as domestic supply has not been substantiated, and (iii) the estimate of th e excess supply of Canadian hogs to the United States 
econometrically derived in National Pork Board (2007) is based on a parameter that is not statistically significant.  
506 Note that Canada reports only the long-run US dema nd elasticities. Canada's response to Arbitrator 
question No. 46, para. 223. 
507 United States comments on Canada 's and Mexico's responses to Arbi trator question No. 46, para. 78. 
508 United States' response to Arbi trator question No. 46; S.A. Hami lton, "The location of the North 
American cattle-feeding industry: a nonspatial modelling approach", Iowa State University Retrospective 
Theses and Dissertations  (1991),  (Exhibit USA-80) (hereinafter "Hamilton (1991)").  WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
- 77 - 
 
  are not based on Canada but on various regions in the United States.509 We note that the United 
States did not provide any explanation as to why these elasticity estimates would be more relevant 
or accurate than the elasticities reported in Tonsor et al. (2015), nor what criteria the United States considered to select the elasticities reported in Hamilton (1991).
510 For this reason, we 
discard these estimates proposed by the United States for the purpose of our calculation.  
6.70.  With respect to feeder pigs, the United States points to Wohlgenant (2005), which provides 
a short-run supply elasticity value for US feeder  pigs. Although Tonsor et al. (2015) does not 
report any supply and demand elasticity estimates for US feeder pigs, it reports the demand 
elasticity of US fed hogs taken from Wohlgenant (2005). Wohlgenant (2005) also reports the short-run elasticities of supply and demand for Ca nadian fed hogs published in Moschini and Meilke 
(1992).
511 Canada argues that the elasticities values for Canadian fed hogs taken from Moschini 
and Meike (1992) are extremely small and base d on data from well before 1992 when the 
structure of the hog industry was different.512 Instead, Canada proposes to set the supply and 
demand elasticities for feeder pigs as the produc t of the supply and demand elasticities for fed 
hogs and the ratio between the supply and demand elasticities for feeder and fed cattle.513 The 
United States is of the view that there is no just ification for Canada's adjustment of the feeder pigs 
supply and demand elasticities in order to "mimic " the relationship between fed and feeder cattle 
elasticities.  
6.71.  We note that Wohlgenant (2005) provides the most recent estimates of the supply elasticity 
for US feeder pigs and demand elasticity for fed hogs. We also note that the demand elasticity of feeder pigs is the only elasticity for which there is no direct estimate. Wohlgenant (2005) 
computes the demand elasticity of Canadian feeder pigs as the product of the demand elasticity for 
Canadian fed hogs taken from Moschini and Meike (1992), and an estimated elasticity of price 
transmission from the US feeder pigs market to the US fed hogs market. We discard the estimate 
of the demand elasticity for Canadian feeder pigs  derived in Wohlgenant (2005) because it is not a 
direct econometric estimation of the Canadian dema nd elasticity for feeder pigs. At the same time, 
we concur with the United States regarding the fact that Canada did not provide any explanation 
as to why the relationship between fed hog and feeder pigs elasticities should "mimic" the fact that 
fed cattle elasticities are more elastic than feeder  cattle elasticities. In fact, a comparison of the 
estimates of the US supply elasticity for feeder pi gs and fed hogs points to a more elastic supply 
elasticity for feeder pigs than for fed hogs. We  therefore reject the idea of "mimicking" the 
elasticities for feeder pigs using the relationship between feeder and fed cattle elasticities. Instead, 
we decide to use the US supply elasticity for feeder pigs provided in Wohlgenant (2005) and set, in the absence of a direct estimate, the demand elasti city for US feeder pigs as the product of the 
demand elasticity for US fed hogs and the elasticity  of price transmission from the US feeder pigs 
market to the US fed hogs market estimated in Wohlgenant (2005).
514 
6.72.  Table 3 summarizes the various supply and demand elasticities used in our own calculation 
of Canada's and Mexico's respective short-run export supply elasticities. 
 
                                               
509 Canada further argues that the United States did not correctly re port the estimates, which are not 
based on Canada but on various regions in the United St ates. Canada also argues that these estimates are out-
of-date. Canada's comments on United States' resp onse to Arbitrator question No. 46, paras. 99-100. 
510 Hamilton (1991) re ports two supply and demand  elasticities for feeder cattle: one for Western 
Canada (based on US Northern Plain elasticities) and on e for Eastern Canada (based on Northeast of the United 
States) 
511 United States' response to Arbitrator question No. 28, footnote 141. 
512 Canada's comments on United States' response to Arbitrator question No. 46, paras. 94-95. 
513 Canada's response to Arbitrator question No. 46, para. 223. 
514 The elasticity of price transmission from the US f eeder pigs market to the US fed hogs market is 
equal to 0.62. See Wohlgenant (2005). WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
- 78 - 
 
  Table 3: Supply and demand elasticity  definitions, estimates and sources 
Type of elasticity Short-run 
estimate Source 
US supply feeder cattle 0.22 Tonsor et al. (2015); Pendell et al. (2010)515; 
Marsh (2003) 
US demand feeder cattle -0.14 Tonsor et al. (2015); Pendell et al. (2010); USDA GIPSA 
Meat Marketing Study (2007) 
US supply fed cattle 0.26 Tonsor et al. (2015); Pendell et al. (2010); Marsh (1994) 
US demand fed cattle -0.40 Tonsor et al. (2015); Pendell et al. (2010); USDA GIPSA 
Meat Marketing Study (2007) 
US supply feeder pigs 0.64 Wohlgenant (2005) 
US demand feeder pigs -0.32 Arbitrator's own calculation based on Wohlgenant (2005)  
US supply fed hogs 0.41 Tonsor et al. (2015); Pendell et al. (2010); Lemieux and 
Wohlgenant (1989)516 
US demand fed hogs -0.51 Tonsor et al. (2015); Pendell et al. (2010); Wohlgenant 
(2005) 
 
6.3.3.4  Derived export su pply elasticity estimates 
6.73.  Based on our decisions above, Table 4 report s Mexico's short-run export supply elasticity for 
feeder cattle and Canada's short-run export supply el asticities for feeder and fed cattle, feeder pigs 
and fed hogs (the detailed calculations are provided in Annex C). 
Table 4: Mexico's and Canada's expo rt supply elasticities computation 
Parameters Mexico's 
feeder cattle Canada's 
feeder cattle Canada's  
fed  
cattle Canada's  
feeder  
pigs Canada's  
fed  
hogs 
Export supply 
elasticity517 2.51 2.18 4.93 5.32 23.31 
 
6.3.3.5  Export quantity simulation results 
6.74.  With the estimates of the different export supply elasticities and the econometric estimates 
of the effects of the COOL measure on the price ba sis, we can proceed to the actual simulation of 
the change in export quantities caused by the COOL measure.  
6.3.3.5.1  Canada's export quantity simulation results 
6.75.  Table 5 reports the computation and result s of Canada's export quantity simulation for 
feeder and fed cattle, feeder pigs and fed hogs. 
                                               
515 D. Pendell et al., "AJAE Appendix: Animal Iden tification and Tracing in the United States", American 
Journal of Agricultural Economics , Vol. 92 (5 March 2010), (Exhibit MEX-2, Appendix 12), pp. 927-940. 
516 C. Lemieux and M. Wohlgenant, "'Ex Ante' Evalua tion of the Economic Impact of Agricultural 
Biotechnology: The Case of Porcine Somatotropin", American Journal of Agricultural Economics , Vol. 71(4) 
(1989), (Exhibit CAN-85), pp. 903-914. 
517 The export supply elasticity is computed as [( εs - η ( 1- ω)]/ ω, where εs is the supply elasticity in 
the domestic market of livestock, η is the demand elasticity in the domestic market of livestock, and ω is the 
export share of livestock in the domestic production. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
- 79 - 
 
  Table 5: Canada's export quantity results 518 
 Impact of the 
COOL measure 
on price Export supply 
elasticity 2014 baseline 
export price 
(CAD/head or 
CAD/lb) 2014 baseline 
export 
quantity 
(head) Change in 
export 
quantity  
(lb or head) 
Feeder cattle -0.260 2.18 2.05  442,908 -84,293,112 
Fed cattle -0.084 4.93 1.55 386,902 -142,724,960 
Feeder pigs -9.158 5.32 63.00  3,893,860 -3,009,397 
Fed hogs -0.079 23.31 0.81 420,713 -270,450,240 
  
 
6.3.3.5.2  Mexico's export quantity simulation results 
6.76.  Table 6 reports the computation and results of Mexico's export quantity simulation for 
feeder cattle. 
Table 6: Mexico's export quantity results 
 Impact of the 
COOL measure 
on price Export supply 
elasticity 2014 baseline 
export price 
(USD/lb) 2014 baseline 
export 
quantity 
(head) Change in 
export 
quantity  
(lb) 
Feeder  cattle  -0.121 2.52 2.42 1,108,009 -65,021,917 
  
6.3.4  Export revenue loss results 
6.77.  Having estimated econometrically the impact of the COOL measure on the price basis ( ∆P) 
and simulated the corresponding change in export quantity ( ∆Q), the computation of the export 
revenue loss is straightforward. 
6.3.4.1  Canada's export revenue losses 6.78.  Table 7 displays the computation and results of Canada's export revenue losses for feeder 
and fed cattle, feeder pigs, and fed hogs. 
Table 7: Canada's export revenue losses 
519 
 Impact of 
the COOL 
measure on 
price Change in 
export 
quantity  
(lb or head) 2014 baseline 
export price 
(CAD/head or 
CAD/lb) 2014 baseline 
export 
quantity 
(head) Export 
revenue loss 
(million CAD) 
Feeder cattle -0.260 -84,293,112 2.05  442,908 -274.067 
Fed cattle -0.084 -142,724,960 1.55 386,902 -278.031 
Feeder pigs -9.158 -3,009,397 63.00 3,893,860 -252.815 
Fed hogs -0.079 -270,450,240 0.81 420,713 -249.816 
Total -1,054.729 
                                               
518 All export prices are expressed as Canadian dollars  per pound, except for feeder pigs whose price is 
expressed as Canadian dollars per he ad. All changes in export quantity are expressed in pounds, except for 
feeder pigs whose change in export quantity is expressed in heads.  
519 All export prices are expressed as Canadian dollars  per pound, except for feeder pigs whose price is 
expressed as Canadian dollars per head.  All changes in export quantity ar e expressed in pounds, except for 
feeder pigs whose change in export  quantity is expressed in heads. WT/DS384/ARB ● WT/DS386/ARB 
BCI deleted as indicated [[ BCI]] 
 
- 80 - 
 
  6.3.4.2  Mexico's export revenue losses 
6.79.  Table 8 reports the computation and results of Mexico's export revenue losses for feeder 
cattle. 
Table 8: Mexico's export revenue losses  
 Impact of 
the COOL 
measure on 
price Change in 
export 
quantity  
(lb) 2014 baseline 
export price 
(USD/lb) 2014 baseline 
export 
quantity 
(head) Export 
revenue loss 
(million USD) 
Feeder cattle -0.121 -65,021,917  1.86 442,908 -227.758 
 
6.3.4.3  Overall ex port revenue losses 
6.80.  We note that Canada and Mexico have proposed their levels of suspension in different 
currencies. We compute overall export revenue losses in the currencies requested by Canada 
(CAD) and Mexico (USD) to arrive at the levels of suspension the levels of suspension that can be 
authorized by the DSB.    
6.81.  Based on our calculation, the level of nullification or impairment for Canada amounts to 
CAD 1,054.729 million annually.  
6.82.  Based on our calculation, the level of nullification or impairment for Mexico amounts to 
USD 227.758 million annually. 
 WT/DS384/ARB  
 
- 81 - 
 
   
7  CONCLUSION AND DECISION IN RESPECT OF CANADA (DS384) 
7.1.  For the reasons set out above, the Arbitrator  determines that the annual level of nullification 
or impairment of benefits accruing to Canada as a result of the COOL measure is 
CAD 1,054.729 million. Therefore, in accordance with Article 22.4 of the DSU, Canada may request 
authorization from the DSB to suspend concessions and related obligations in the goods sector under the GATT 1994 at a level not exc eeding CAD 1,054.729 million annually. 
 WT/DS386/ARB 
 
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  7  CONCLUSION AND DECISION IN RESPECT OF MEXICO (DS386) 
7.1.  For the reasons set out above, the Arbitrator  determines that the annual level of nullification 
o r  i m p a i r m e n t  o f  b e n e f i t s  a c c r u i n g  t o  M e x i c o  a s  a  r e s u l t  o f  t h e  C O O L  m e a s u r e  i s  USD 227.758 million. Therefore, in accordance with  Article 22.4 of the DSU, Mexico may request 
authorization from the DSB to suspend concessions and related obligations in the goods sector 
under the GATT 1994 at a level not exceeding USD 227.758 million annually. 
 
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