Policymakers Won’t Cool It on Protectionism

By Gabriella Beaumont‐​Smith and Levi Latoz of Cato.

"A bipartisan group of Senators led by Senator Tammy Baldwin (D‑WI) introduced the Country‐​of‐​Origin Labeling (COOL) Online Act on May 3, 2023. Built on the pretext that American consumers want to purchase more “Made in America” goods, the proposed bill mandates that imported products “to be introduced, sold, advertised, or offered for sale in commerce on an internet website” are clearly and conspicuously marked with the country‐​of‐​origin. While this proposal may seem benign, this legislation will burden U.S. businesses, and ultimately consumers.

COOL laws are not new. Retailers are required to notify customers with country‐​of‐​origin labeling for certain foods. Supporters of this type of labeling argue that it helps inform consumers and falsely asserts that people are willing to pay more for this information. In reality, these laws are burdensome for producers and consumers. For example, the U.S. Department of Agriculture estimated that mandatory country‐​of‐​origin labeling for beef and pork products would cost over $9 billion over 10 years, and U.S. consumers’ purchasing power in the 10^th year would fall by $212 million. The COOL Online Act applies to a much broader range of goods than beef and pork products, so the imposed costs of this law would be much greater.

Further, COOL is a well understood non‐​tariff barrier and protectionist scheme. This bill likely would violate World Trade Organization (WTO) rules on non‐​tariff barriers, as it is not simple, transparent, or predictable, and would likely have restricting, distorting, or disruptive effects on trade. In 2015, the WTO affirmed Canada’s claims that U.S. COOL requirements violated WTO rules, resulting in $1 billion in retaliatory tariffs.

E‑commerce platforms host millions of small businesses and independent sellers whose products are sourced from all over the world, making it more difficult to ascertain origin. Requiring these platforms to track and comply with country‐​of‐​origin labeling for millions of products threatens to raise the cost experienced by both businesses and consumers. Information about origin can more easily be included by retailers or sellers in their product descriptions and advertisements on the platform. In fact, since 2021, Amazon has required sellers to provide country‐​of‐​origin information.

Determining the country of origin is an extremely complex issue and is reliant on clear definitions traditionally established in trade laws enforced by the United States Customs and Border Protection (CBP). However, enforcement of the proposed COOL Online Act would be a far more complicated process, particularly as the bill proposes providing broad discretion to the Federal Trade Commission (FTC). While the bill includes a memorandum of understanding provision between CBP and the FTC, inserting the FTC at all seems unnecessary and likely to cause confusion in the implementation and enforcement of the law, if passed.

COOL Online risks shrinking the impact that e‑commerce platforms can have in supporting the growth of businesses that use their services, ultimately harming U.S. workers, business owners, and consumers. This policy not only threatens to significantly raise the costs for businesses utilizing e‑commerce platforms, just as it raised costs for producers, packers, and retailers for certain food products subject to mandatory COOL, but also potentially leaves U.S. businesses vulnerable to retaliatory tariffs imposed by trading partners.

As this bill is considered, it raises the question whether such labeling actually promotes the best interest of American businesses and consumers. While some Americans may prefer buying American‐​made products and some say they are willing to pay a premium of approximately 11 cents for “Made in America” products, origin is not important to everyone. If consumers truly demand origin labeling, businesses will be incentivized to provide it in a bid to increase sales. There is no good reason for Congress to intervene and impose costs on businesses for information that can be provided as consumers, not policymakers, demand."