UNITED STATES – CERTAIN COUNTRY OF ORIGIN LABELLING (COOL) REQUIREMENTS
Document: RECOURSE TO ARTICLE 22.6 OF THE DSU BY THE UNITED STATES DECISIONS BY THE ARBITRATOR
Date: 7 December 2015
Document codes: WT/DS384/ARB; WT/DS386/ARB
Complainant: Canada
Respondent: U.S.
Third parties: Argentina, Australia, Brazil, China, Colombia, EU, Guatemala, India, Japan, South Korea, Mexico, New Zealand, Peru, Taiwan
Dispute stage: Implementation & Compliance
Agreements cited: Art. 2.1, 2.2, 2.4  Technical Barriers to Trade (TBT)Art. 2, 5, 7  Sanitary and Phytosanitary Measures (SPS)Art. IX:2, IX, X:3(a)  GATT 1994Art. 2(b), 2(c), 2(e), 2(j)  Rules of Origin

UNITED STATES – CERTAIN COUNTRY OF ORIGIN LABELLING (COOL)
REQUIREMENTS

RECOURSE TO ARTICLE 22.6 OF THE DSU BY THE UNITED STATES
DECISIONS BY THE ARBITRATOR
 ●
BCI deleted as indicated [[BCI]]

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, , 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, , 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 – Measures 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 Communities – Regime for the
Importation, Sale and Distribution of Bananas – Recourse to Arbitration by
the European Communities under 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 Communities – Regime for the
Importation, Sale and Distribution of Bananas – Recourse to Arbitration by
the European Communities under 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 Countries 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/DS283/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 European Communities under Article 22.6 of
the DSU, WT/DS48/ARB, 12 July 1999, 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 Community – 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 and 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 Consumer Photographic Film and
Paper, WT/DS44/R, adopted 22 April 1998, DSR 1998:IV, p. 1179
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of
WT/DS384/ARB ● WT/DS386/ARB
BCI deleted as indicated [[BCI]]

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 Communities – 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, , WT/DS384/AB/R / WT/DS386/AB/R, adopted 23 July
2012, DSR 2012:V, p. 2449
US – COOL Panel Reports, , 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, – Arbitration under Article 21.3(c) of the DSU,
WT/DS384/24, WT/DS386/23, 4 December 2012, DSR 2012:XIII, p. 7173
US – COOL
(Article 21.5 – Canada and
Mexico)
Appellate Body Reports, – 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, – 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 /

US – FSC
(Article 22.6 – US)
Decision by the Arbitrator, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Arbitration 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
BCI deleted as indicated [[BCI]]

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
WT/DS384/ARB ● WT/DS386/ARB
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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-Raised Fish and Shellfish, Perishable
Agricultural Commodities, Peanuts, Pecans, 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-Raised Fish and Shellfish, Perishable
Agricultural Commodities, Peanuts, Pecans, 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 Governing 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 Department of Agriculture
Working Procedures Working Procedures of the Arbitrator
WTO World Trade Organization
WTO Agreement Marrakesh Agreement Esta blishing the World Trade Organization
WT/DS384/ARB ● WT/DS386/ARB
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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 cattle sold through direct sales to AMS
WT/DS384/ARB ● WT/DS386/ARB
BCI deleted as indicated [[BCI]]

Exhibit No. Title
MEX-44 Statement of Confederación Nacional de Organizaciones Ganaderas of 30 September 2015
MEX-46 Satellite map of border crossing 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)
WT/DS384/ARB ● WT/DS386/ARB
BCI deleted as indicated [[BCI]]

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 compliance 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 through the Farm Security and 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, and 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. The 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 Nuts, 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 original 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 Shellfish, Perishable Agricultural Commodities, 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
BCI deleted as indicated [[BCI]]

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 the 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 requested 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.
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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 the 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 request 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.
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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 meeting 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 this 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 jurisdiction. 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
33 Award of the Arbitrators, US – Section 110(5) Copyright Act (Article 25), para. 2.1.
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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 concessions 37, the
United States' objection to that request 38, 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 action 40; the text of Article 22.6 41; 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 DSU 43; the authority and functions of the DSB 44;
procedures and provisions with respect to other arbitrations provided for under the DSU 45; 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 the Arbitrator, Canada was
copied on this communication. Canada submitted its own unsolicited comments on 31 July 2015. We note,
however, that Canada's participatory rights under Paragraph 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.
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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 decision-making rule of a particular DSB action may, in
accordance with Article 1.2 of the DSU, derive from "special or additional 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 Agreement for obtaining information 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 for 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 under 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 identified in Appendix 2 to the DSU prevail, including over Article 2.4 of the
49 For example, the European Union 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 Interpretation of Article 22.6 of the DSU Regarding the
Referral of a Request to Arbitration, para. 9.
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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 concessions 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 hearing 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 intend 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
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 third-party status under Article 22 of the DSU and given that we do not believe
that Ecuador's rights will be affected by this proceeding, we declined Ecuador's request. 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 that there is no provision in the DSU as regards third
party status under Article 22, and the fact that we do not believe that Australia'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 affect the EC's rights").
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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 questions, 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 consistency of the amounts proposed
by the US and Canada with DSU provisions. 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.
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3.1 Overview of the nullification or impairment 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 different 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 million 63 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 suspend concessions or other obligations based on the
nullification or impairment of benefits caused by the original and amended COOL measures, reviewed in the
original and compliance stages of these disputes, respectively. 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 combined aspects or effects of the original and amended COOL measures.
60 Canada's methodology paper, Sumner Study, para. 2; Mexico's methodology paper, paras. 18-23.
Canada and Mexico both submitted two documents consisting of an introductory document (referenced in this
Decision as "Canada's methodology paper" and "Mexico's methodology paper", respectively) and attached to
that introductory document a comprehensive methodology paper (referenced in this Decision as "Canada's
methodology paper, Sumner Study" and "Mexico's methodology paper, Pouliot Study", 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 quantities exported to eliminate any price discrepancy"
between livestock prices in Canada and the United States); Mexico's methodology paper, Pouliot Study, p. 5
(describing "arbitrage by Mexican feeder cattle producers [causing] the price of feeder cattle in Mexico to
adjust until the return on selling feeder cattle in the US export 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 gilts, typically marketed
domestically or exported to the United States at weights between 12 pounds and 100 pounds to
be intensively fed grain in preparation 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 stage 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.
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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, Sumner Study, para. 6; Mexico's methodology paper, para. 13.
68 The parties use slightly different base-periods, 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 quantity is "simulated" based on the responsiveness to the
estimated change in price attributed to the COOL measure.
72 Canada's methodology paper, Sumner Study, paras. 31-35; Mexico'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)) and 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.
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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,

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.
79 United States' opening statement at the meeting of the Arbitrator, para. 13; see also United States'
response to Arbitrator question No. 1; United States' 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 Arbitrator question No. 1, para. 4.
81 Canada's written submission, paras. 67-73; Mexico's written submission, paras. 25-31 and 35-39.
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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 methodologies 90, 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 any 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.
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elements of the methodologies initially proposed by the parties 91 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 Amendment) (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").
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burden of proof, and in particular, to further explore 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 substantiate 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 Arbitrator question No. 1, para. 5.
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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 respect 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, Sumner Study, paras. 31-42 and 140-143; Mexico's methodology
paper, paras. 24-27; Mexico's methodology paper, Pouliot Study, pp. 21-24.
106 United States' written submission, paras. 119-121.
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).
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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.
117 Canada's written submission, paras. 101-107. See also Canada's opening statement at the meeting
of the Arbitrator, para. 31.
121 Mexico's written submission, paras. 73-78.
122 Mexico's written submission, paras. 60-68.
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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 decision 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 the "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 specificity 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 nullification 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 liability 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 "prompt settlement of situations in which a Member
considers that any benefits accruing to it directly or indirectly under the covered 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.
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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 benefit denied was not improved market 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.
134 See Panel Reports, US – COOL (Article 21.5 – Canada and Mexico), paras. 7.676 and 7.713.
135 The particular issue addressed by the panel was whether there were "benefits accruing" under WTO
agreements when NAFTA (and not the MFN-rate) 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 zero tariff bindings for oilseeds … were impaired as a
result of the introduction of production subsidy schemes which … prevent the tariff concessions from having
any impact on the competitive relationship between domestic and imported 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 similarly 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. Under 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 losses 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.
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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 Amendment) (Mexico) (Article 22.6 –
US), paras. 3.20-3.32; and EC – Bananas III (US) (Article 22.6 – EC), paras. 6.9-6.11.
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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 submission, 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 impairment, but rather whether that
economic impact had been taken into account in Ecuador's request to suspend concessions under another
agreement.
 Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC), paras. 131-138.
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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 arguments 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 distinguishes domestic injury effects from nullification
or impairment, but also creates a special rule for DSU 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 the 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 provisions 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 governmental measures").
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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 arbitration, 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 views 165 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

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 the following text after the 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 submission, para. 80.
164 See United States' written submission, paras. 123-125.
165 See TN/DS/26, paras. 819-832.
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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 feeder 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 methodology. 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 words, 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 econometric model includes an error term, also known as
the "residual" term, to capture the facts that no matter how well the model is specified: (i) it is often
impossible to account for every factor that has an impact on the dependent variable; (ii) 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 States' written submission (Mexico), paras. 73-74.
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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 explain 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, Sumner Study, para. 13; Mexico's methodology paper, Pouliot Study,
p. 14.
171 See, e.g. Canada's response to Arbitrator question 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 accurately 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),
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.
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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'
179 United States' response to Arbitrator question No. 5, para. 28. See also United States' written
180 United States' response to Arbitrator question No. 32, paras. 2-5.
181 United States' response to Arbitrator question No. 32, para. 5 (citing Sample Econometric Analysis
and Data, (Exhibit USA-61)). In this Decision, exhibits submitted by Canada are referred 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 Arbitrator question No. 33, para. 7.
183 United States' response to Arbitrator question No. 33, para. 7.
184 United States' response to Arbitrator question No. 33, para. 7.
185 United States' response to Arbitrator question No. 33, para. 8.
188 Canada's written submission, para. 36 (citing 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; 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 project 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
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5.42. Canada also responds to evidence submitted 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 model 199, 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 United States' response to Arbitrator question No. 33, para. 21.
190 Canada's comments on the United States' response to Arbitrator question No. 33, para. 21.
191 Canada's comments on the United States' response to Arbitrator question No. 33, paras. 24-25.
192 Canada's comments on the United States' response to Arbitrator question No. 33, paras. 26-29.
194 Mexico's methodology paper, Pouliot Study, p. 8.
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 increases in U.S. prices. But since Mexico's price 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 feeder 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 Arbitrator question No. 33, para. 21.
201 Mexico's comments on the United States' response to Arbitrator question No. 33, para. 20.
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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 livestock 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, Sumner Study, expression (3); Mexico'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 rather than solely from Canada as in the United States'
illustration.
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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 American Livestock and Meat Industries", Iowa Ag Review, Vol. 9 (Summer
2003), (Exhibit MEX-33), pp. 8-9; W. Hahn et al., "Market 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 region if the price difference exceeds the marginal
transportation and handling costs". J. Vercammen, Agricultural Marketing: Structural Models for Price Analysis
(Routledge, 2011), (Exhibit MEX-31), p. 15. With specific 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 Canadian and US cattle and hogs. For such Canadian livestock, this process is
described as follows:
As long as trade in meat and livestock is relatively 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 movement 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 Agriculture 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 basis 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, (Exhibit 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
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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 the 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, (Exhibit 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/english/res_e/publications_e/practical_guide12_e.htm, or WTO World Trade Report 2012,
p. 137.
212 United States' response to Arbitrator question No. 33, para. 7.
213 United States' response to Arbitrator 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 higher 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 though 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.
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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 COOL 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 slaughter 222, 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 States 226, with the result that exporters of livestock to the United States are
"price-takers" according to US import demand. It follows from high import demand elasticities that

216 This was evidenced by exporters of livestock to the United States being required to bear differential
costs by accepting discounts or discontinued processing by US firms seeking to comply with the segregation
and verification requirements of the 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 relevant "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 packers and processors "to separate 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 adjustment 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 Arbitrator 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 Statistics 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 Marketing Information Center. Mexico's response to Arbitrator question No. 31,
para. 87 and Import share of Mexican 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.
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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 demonstrated 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 question No. 32, paras. 4-
228 See 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. 10 and Table 3 (showing a long term
reduction in the prices of feeder and fed cattle, and fed hogs, 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 States' 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 Arbitrator 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 variable."); Mexico's response to Arbitrator question No.
5(c), para. 17 ("It would not be possible to estimate Mexico’s lost export exports revenues by specifying a
model with the actual export price 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 unit root refers to the non-stationarity property of a given variable that
can alter the consistency of the parameters' estimation. 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 variable and the explanatory variable
are both characterized by a unit root, the estimated parameter is not biased only if both variables are
characterized by a long-run equilibrium 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 price also affect the U.S. price.").
233 United States' response to Arbitrator question No. 32, para. 5.
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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 prices, 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.
241 See Canada's written submission, paras. 40-49; Canada's response to Arbitrator question No. 35.
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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 above 245, 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 - Pust = α + βZt + γ1(DCOOL1) + γ2(DCOOL2) + δ(Pet-1 - Pust-1) + vpt
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 amended (DCOOL2) measures. Parameter δ corresponds to the "lagged
dependent variable" (Pet-1 - Pust-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.

245 See para. 5.50 above.
246 Canada's methodology paper, Sumner Study, para. 74, equation (6).
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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 Study, 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 question 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 considers to be "more extensive than that provided by
Canada", with considerations additional to those argued by Canada and Mexico. United States' response to
Arbitrator question No. 6, para. 40. Although not identical, 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 logically possible; the model must be consistent
with economic theory; explanatory variables must be exogenous or uncorrelated with the error
term; parameter values must be stable otherwise 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.
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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 products 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, Pouliot Study, p.18, footnote 6.
257 Mexico's written submission, 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 differential 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 within the United States". Canada's written submission,
para. 44. Although this assertion has not been concretely substantiated in this arbitration, we do not consider
that it obviates the theoretical grounds for including transport 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.
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different timing and severity of economic recession in the United States 261, 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 per 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).
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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 question 275, 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 well 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 also Exhibit CAN-95 (BCI).
268 Exhibit CAN-7 (BCI).
269 Exhibit CAN-7 (BCI).
270 Canada's methodology paper, Sumner Study, paras. 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 submission (Canada), paras. 112-113.
275 United States' comments on Canada's response 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 Arbitrator question No. 21, para. 76.
279 Canada's response to Arbitrator question No. 19, para. 51 (citing Exhibit CAN-52 (BCI), para. 4).
280 Canada's written submission, para. 55. At the substantive meeting with the Arbitrator, Canada
explained that the witness statement had been submitted under oath in order to address concerns regarding
the representativeness and accuracy of the information attested to.
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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

282 Canada's response to Arbitrator 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 additional 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 additional 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.
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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 invoice 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.
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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 response to Arbitrator question No. 57, para. 100.
298 United States' response to Arbitrator 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.
302 Canada's response to Arbitrator question No. 5(b), para. 15.
303 Canada's response to Arbitrator question No. 5(b), para. 15.
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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 impact 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

305 Canada's response to Arbitrator question No. 5(b), para. 15.
306 Canada's response to Arbitrator 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.
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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 Arbitrator 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.
316 Mexico's written submission, para. 53 (citing 2013 Final Rule, p. 31367).
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).
322 Mexico's response to Arbitrator question No. 45, para. 94.
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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:
P
PQQ ce
 
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 empirically 325, 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, Pouliot Study, p. 17, equation (5).
324 Mexico's methodology paper, Pouliot Study, p. 17, equation (5).
325 Mexico explains that it is not able to estimate the export supply elasticity econometrically because of
the confounding effects from the drought and the COOL measure. Mexico's methodology paper, Pouliot Study,
p. 18, footnote 4.
326 Mexico's methodology paper, Pouliot 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 Arbitrator question No. 46, footnote 42.
328 Mexico's methodology paper, Pouliot Study, p. 19.
329 Mexico's methodology paper, 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 paper, Pouliot Study, p. 20.
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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' agreement 339 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 paper, Pouliot Study, p. 20.
333 Mexico's methodology paper, Pouliot Study, p. 20.
334 Mexico's methodology paper, Pouliot Study, p. 21.
335 United States' written submission (Mexico), para. 84.
336 Mexico's methodology paper, 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 general 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 reflected 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 cattle exports as a share of Mexican feeder cattle
supply", and that Mexico's "adjustment [to the export share] reflects the fact that not all Mexican feeder cattle
are eligible to export and is consistent with other literature that describes the Mexican cattle industry." United
States' response to Arbitrator question No. 46, para. 85.
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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 that 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 for 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 exported 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 elasticity value depends on
assumptions about export eligibility in the computation of export share.
341 Canada's methodology paper, Sumner Study, Appendix II, para. 188.
342 United States' written submission (Canada), paras. 108-109.
343 United States' written submission (Canada), paras. 108-109.
344 United States' written submission (Canada), para. 108.
345 United States' written submission (Canada), para. 109.
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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 Arbitrator 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 Arbitrator question No. 37, paras. 63-64.
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).
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.
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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 while "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 2011 372; (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 importation 376; (c) satellite imagery of a border crossing ranch facility 377; and (d) a

360 Mexico's methodology paper, Pouliot Study, pp. 9-10. Mexico converts 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 Arbitrator question No. 16, para. 71.
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 (citing Harmonized Tariff Schedule of
the United States, tariff item 0102.29.40).
369 Mexico's response to Arbitrator 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 Arbitrator question No. 30(b), para. 83 and figure 1.
373 Mexico's response to Arbitrator question No. 30(b), para. 85.
374 Mexico's response to Arbitrator 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 Arbitrator 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.
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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 per 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, parameters, and equations, (Exhibit USA-3), tab 3.
383 See Guide to the COOL EDM, (Exhibit USA-4), p. 2.
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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 submits 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 Arbitrator 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 Summary", an AMS publication. The "Hog Market Statistics"
contained in this publication refer to "Canadian Swine Exports to US" citing APHIS as the source for these data.
386 We note that this discrepancy may also be the result 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 Organizaciones 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).
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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 sales – 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.
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 Arbitrator question No. 62.
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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 econometrics, (Exhibit CAN-35); Weekly pig 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.
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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 parties 418, 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.
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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 (retail-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 Mexico's methodologies and, therefore, did not validly establish a prima facie
case against the levels of suspension 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 submission, 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 which 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, respectively); (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 difference (i.e. change from two equilibria).
425 United States' response to Arbitrator question No. 4, para. 20.
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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

427 United States' written submission, paras. 47-58.
428 United States' written submission, para. 56 (noting 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)").
433 Canada's written submission, paras. 78-79.
435 Canada's written submission, para. 85. See also Mexico's written submission, para. 32 ("complete
removal of the COOL measure would require a period of adjustment that exceeds one year").
437 Mexico's written submission, para. 34. Mexico argues to the contrary 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.
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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 the 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 rely 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

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").
442 Mexico's written submission, para. 29, Canada argues along the same lines. See Canada's written
submission, paras. 72-73.
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.
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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 and 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 calculation that Mexico undertook (see our conclusion above
in section 5.2.2.2), we note that there are sufficient data available to apply Mexico's formula to calculating a
revised elasticity for Mexico. In addition, 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, the United States acknowledges that
"[t]he surplus supply (export) elasticity equation Mexico relied on in its Methodology Paper is a standard
equation that is reflected in the literature." 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.
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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 differential 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 source 461, 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 Arbitrator 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 Arbitrator 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 reliable 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.
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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 section 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 short-run was also relevant in the context 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.
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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 impact 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 description 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, consumers, 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 simply 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 counterfactual in the following terms: "if the COOL measure had not been
adopted" and "if the COOL measure was never in place", Mexico's methodology paper, Pouliot Study, p. 3;
"had never been implemented", Mexico's methodology paper, 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 recommendations and rulings of the DSB". WT/DS386/35, p. 2.
The United States describes the counterfactual in the following terms:
"The appropriate counterfactual is not, as Canada 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 measure. Rather, the appropriate counterfactual is one
where the amended COOL measure is brought into 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 amended COOL measure had not been in place", Canada's
methodology paper, Sumner Study, para. 12; "without the amended COOL measure", 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 the SCM Agreement, which requires the
arbitrator to establish whether the proposed "countermeasures 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.
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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 price basis specification
6.35. We estimate the effect of the COOL measure on the price basis using the following linear
regression equation:
  ttUStCANttUStCAN ePPCOOLCOOLZPP   1,1,21,, 21 

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 determination 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 question 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 accurately 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 Banerjee, 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 dependent 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 that, in this terminology, are unbalanced. They are
nonetheless valid tools for inference as long as the correct critical values are used." See p. 166. In order to
ensure that our findings are robust, we also estimated a model where transport costs were only included in
first difference. The results of those estimations are in line with those where transport costs are in levels.
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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:



 1
21Pe
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:
  ttUStMEXttUStMEX ePPCOOLCOOLXPP   1,1,21,, 21 
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 calculations 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-period. As discussed by the parties, this is generally a period 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 computed for fed (slaughter) livestock as the
price basis is not specified for different weight 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 respective shares of trade for different sizes of feeder pigs (i.e. weanlings
and larger feeder pigs).
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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 cattle (and feeder pig).475
6.3.2.3 Data for price 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 for 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 significant '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 severe drought in Texas to control for drought events;
(f) 12-months lag of a 4-week moving average of PEDv 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 prices 479 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.
478 Monthly data on the (seasonally adjusted) unemployment 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) unemployment 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.
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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 estimates 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 econometric 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. Mexico'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 the 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 the 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).
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 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, based 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, unrebutted 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 difference 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 remained in Canada. Since there was capacity in
Canada to feed these cattle, the 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, Sumner 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).
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supply curve and is defined as the ratio between the percentage change in export quantity and the
percentage change in export price.
6.57. As explained in greater detail in section 5.2.2.2 489, 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):
c
ce P
PQQ  
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 therefore 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.
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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 demand 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, paras. 92 and 95.
495 Canada's response to question No. 31, paras. 87, 90, 92, and 95.
496 United States' response to Arbitrator 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 comments on the United States' response
to Arbitrator question No. 46, para. 98; United States' comments on Canada's response 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.
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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 demand 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 paper, 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 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.
505 In addition to reporting US supply and demand elasticity estimates, the United States provided a list
of alternative export supply elasticity estimates for Canadian feeder pigs taken from Wohlgenant, "Market
Modeling of the Effects of Adoption of New Swine Waste 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 Administration (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 Program", 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. Imports 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 export supply elasticities, 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 the 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 demand elasticities. Canada's response to Arbitrator
question No. 46, para. 223.
507 United States comments on Canada's and Mexico's responses to Arbitrator question No. 46, para. 78.
508 United States' response to Arbitrator question No. 46; S.A. Hamilton, "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)").
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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 Canadian 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 justification 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 demand 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 report the estimates, which are not
based on Canada but on various regions in the United States. Canada also argues that these estimates are out-
of-date. Canada's comments on United States' response to Arbitrator question No. 46, paras. 99-100.
510 Hamilton (1991) reports two supply and demand elasticities for feeder cattle: one for Western
Canada (based on US Northern Plain elasticities) and one 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 feeder pigs market to the US fed hogs market is
equal to 0.62. See Wohlgenant (2005).
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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 supply elasticity estimates
6.73. Based on our decisions above, Table 4 reports Mexico's short-run export supply elasticity for
feeder cattle and Canada's short-run export supply elasticities 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 export 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 Identification 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' Evaluation 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.
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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 head. 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 are expressed in pounds, except for
feeder pigs whose change in export quantity is expressed in heads.
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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 export 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.

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 exceeding CAD 1,054.729 million annually.

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.