A World Trade Organization dispute panel agreed with their complaint that mandatory U.S. labeling laws were too stringent, giving U.S. livestock an unfair advantage over imports from Mexico and Canada.
The panel said the U.S. rules, called country of origin labeling, or COOL, violated WTO rules on technical barriers to trade.
``When the United States implemented COOL, the impact on the Canadian and American livestock industry was immediately negative,'' Canadian Agriculture Minister Gerry Ritz said. ``The WTO's final report marks a clear win for Canadian livestock producers.''
The law came into effect in 2008, driving up costs for U.S. packers through the need to segregate imported animals and the extra expense of labeling products.
It also prompted a sharp drop in U.S. cattle and hog imports. Canadian cattle shipments to the United States have fallen by more than half and hog exports to the United States are down 40 percent so far in 2011 from the volumes three years ago.
Following the WTO ruling, the U.S. Trade Representative's Office said it was considering all options, including an appeal.
``Although the panel disagreed with the specifics of how the United States designed those requirements, we remain committed to providing consumers with accurate and relevant information with respect to the origin of meat products that they buy at the retail level,'' the USTR said.
The United States has 60 days to appeal the ruling.
The American Meat Institute, which represents meat packers, welcomed the ruling, saying the law is ``costly and cumbersome,'' and a violation of WTO obligations.
The Canadian meat industry is not seeking a repeal of the law, just changes, said Martin Rice, executive director of the Canadian Pork Council.
One possible solution would be changing the rules so that an imported live animal becomes a product of the United States once it is processed, Rice said.
Many U.S. meat-packing plants, especially those near the U.S.-Canada border, either stopped accepting Canadian livestock or bought less due to the increased costs.
Changing the law would most affect packing plants that were once big buyers of Canadian animals, including those owned by JBS, Tyson Foods, Cargill Inc, Hormel Foods, and Smithfield Foods, Canadian farm industry officials said.
U.S. farmers did not benefit from COOL and some ranchers who feed imported cattle suffered, the National Cattlemen's Beef Association said in a statement.
The WTO ruling affects only meat from imported livestock, but the U.S. labeling law covers a wide range of foods from meats to vegetables to nuts. It requires grocers to put labels on cuts of beef, pork, lamb, chicken and ground meat, or post signs that list the origin of the meat.
Labeling also is required for seafood, fruits, vegetables, ginseng and peanuts, pecans and macadamia nuts. (Reporting by Tom Miles in Geneva, Rod Nickel in Winnipeg, Manitoba, and Charles Abbott in Washington; editing by Stephanie Nebehay, Peter Galloway and Rob Wilson)