For the last fifteen years, opponents of commodity promotion programs at the federal and state levels have pursued an aggressive litigation strategy seeking to end these programs. Their court strategy focuses primarily on their contention that these programs violate the First Amendment by suggesting that the mandatory assessments used to fund these programs amount to a form of "forced speech." They had precious little success early on, but gained a bit of momentum in the middle of the 1990s when the Ninth Circuit in a few cases ruled that mandatory funding of commodity promotion violated the First Amendment. More recently, in 2001, the Supreme Court in United Foods struck down the Mushroom Promotion Act as a violation of the First Amendment. 

On July 8, 2003, a three-judge panel of the U.S. Court of Appeals for the Eighth Circuit, sitting in St. Louis, ruled that the Beef Promotion and Research Act violated the First Amendment free speech rights of cattle producers. In deciding Livestock Marketing Ass'n v. Veneman, it upheld a July 2002 ruling of the District Court for South Dakota. In addition, the Eighth Circuit panel rejected arguments for limiting the nationwide injunction issued by the District Court that called for an end to collections of the beef checkoff assessment of $1.00 per head of cattle sold. The Eighth Circuit panel did, however, continue the stay of that injunction while the government and pro-checkoff producers sought a rehearing of the case by the entire Eighth Circuit. On October 16, 2003, the Eighth Circuit voted to deny the rehearing request, with two judges dissenting. This means that the stay of the injunction is set to expire on October 23, 2003. On October 17 the government filed a motion to stay the decision through January 14, 2004 while the government considers whether to take an appeal to the Supreme Court. While the government has not indicated its intentions, a review of its October 17 filing suggests that it strongly leaning in favor of filing such an appeal with the U.S. Supreme Court. 

The Eighth Circuit panel dealt with three arguments put forth by the government and the pro-checkoff producers in arguing that the Beef Act did not violate the First Amendment - (1) the Beef Act produces government speech, (2) comprehensive regulation of the beef industry satisfies Glickman v. Wileman, and (3) the Beef Act satisfies the Central Hudson test because the Beef Act directly advances a substantial government interest in a narrowly tailored way. The Eighth Circuit panel rejected all three arguments. 

The government speech argument asserts that when the government speaks, the First Amendment does not apply. The First Amendment restrains the government's ability to restrict individual's speech, it does not preclude the government itself from speaking. Tax dollars support all sorts of government speech without any constitutional problem. The Army's advertising to "be all you can be" is a classic example of government speech and raises no First Amendment issue. The Eighth Circuit panel rejected this argument. After noting that government speech cases and compelled funding cases are "fundamentally different," the court held that it would analyze LMA's First Amendment claim by looking to "the Supreme Court's compelled speech line of cases." Slip Op. at 16. While it factually distinguished the key cases cited in support of the government speech argument (cases such as Lebron, Rust, Southworth, and Ku Klux Klan), beyond this it did not address the core of the government speech argument and what seemed to be clear in the Supreme Court's United Foods decision - that is, that if the speech of a commodity promotion board is government speech, then there is no need to address the compelled funding line of cases. 

While the Eighth Circuit panel sought to justify why it thought current Supreme Court and Eighth Circuit precedent on government speech were factually distinguishable from the LMA case, it did not come to grips with why the case is nevertheless not properly analyzed under the government speech doctrine. Indeed, the Eighth Circuit's rejection of the applicability Lebron based solely on the fact that in Lebron the question was whether Amtrak was the government for purposes of restricting an individual's own speech rather than for purposes of Amtrak itself being the speaker, Slip Op. at 15 n. 5, was particularly weak. In short, the Eighth Circuit never explained why it concluded that while private doctors funded pursuant to federal law with federal funds in Rust engaged in government speech, the Beef Board, which the Eighth Circuit itself describes as being "quasi-governmental," slip op. at 20, and that is funded pursuant to federal law with federal funds nevertheless did not produce government speech. 

With respect to the application of the Supreme Court's Glickman v. Wileman precedent, the Eighth Circuit panel essentially ruled that unless the particular industry (in this case the beef industry) is as comprehensively regulated as California tree fruit industry, the Glickman precedent would not apply. Slip Op. at 17. It further held that where both government speech and the Glickman analysis do not apply, it is appropriate to apply the Central Hudson test. Slip Op. at 18. In doing so, the Eighth Circuit rejected the reasoning of the District Court that had found that the Central Hudson test was inapplicable based on what it viewed as Supreme Court precedent. The Eight Circuit ruled that "had the government relied upon Central Hudson in United Foods, the Supreme Court would have adapted the Central Hudson test to the circumstances of that case." Id. 

Having found the Central Hudson test applicable, the panel determined that LMA had a "protected interest" in being compelled to pay for Beef Board advertising. The panel then determined that the Beef Act failed the "substantial government interest" prong of the Central Hudson test. Taking into account what it determined to be the "quasi-governmental nature of the Beef Board" and the "oversight, albeit limited, exercised by the Secretary over the generic advertising," the panel found the substantiality of the government's interest in the Checkoff to be "highly doubtful." Slip Op. at 20. After examining that interest in greater detail, the court concluded that the government's interest in the Checkoff "is not sufficiently substantial to justify the infringement on [LMA's] First Amendment rights." Slip Op. at 23. 

In addition, the court ruled that the trial court did not abuse its discretion in enjoining all collections under the Beef Checkoff rather than simply those that fund the generic advertising of the Beef Board. Slip Op. at 24. In addition, the stay the Eighth Circuit had issued pending appeal will continue through the conclusion of any further proceedings in the Eighth Circuit, such as the filing of a petition for rehearing. Only on the issuance of the court's mandate (which by rule is to occur seven days following a denial of a petition for rehearing), will the court's stay of the injunction pending appeal dissolve. 

Currently pending before the Ninth Circuit in San Francisco is a second constitutional challenge to the Beef Act. In that case, Charter v. USDA, however, the trial court ruled that Beef Act was constitutional. The Department of Justice, however, has notified the Ninth Circuit of the Eighth Circuit's LMA decision but pointed out that in the view of the Department of Justice the constitutional analysis is incorrect. In a July 24, 2003 letter to the Ninth Circuit, Matthew Collette of the Justice Department stated, "The panel's decision [in LMA] is fatally flawed and this Court should not follow it." He said, "The panel's most fundamental error is its conclusion that cases addressing the 'government speech' doctrine apply only to challenges to the government's 'choice of content,' while challenges to the government's authority to compel support for its speech are governed by compelled speech cases such as [cases dealing with bar associations and teacher's unions like Keller, Abood, and cases dealing with the Mushroom Promotion Act liked United Foods]." He noted that contrary to the panel ruling, it is fundamental that the government may say what it wishes free from compelled speech claims. Indeed, he noted, the Supreme Court in Keller "explicitly recognized the application of the government speech doctrine in the context of compelled support for speech, saying 'if every citizen were to have a right to insist that no one paid by public funds express a view with which he disagreed, debate over issues of great concern to the public would be limited to those in the private sector, and the process of government as we know it would be radically transformed.'" 

The Justice Department also suggested that the Eighth Circuit panel erred by merging government speech, the Central Hudson test, and the United Foods germaneness analysis, treating them as related doctrines that are part of the same inquiry and concluding that the United Foods controls the entire inquiry, despite the fact that in United Foods the Supreme Court expressly declined to reach the government speech issue because it had not be previously argued in that case. 

As noted above, the government and pro-checkoff producers sought an en banc rehearing in the Eighth Circuit before all nine judges of that Circuit Court and, on October 16, the petition for rehearing was denied with two judges voting in favor of granting the petition. It is likely that the Justice Department's Office of Solicitor General will ask the Supreme Court to review the Eighth Circuit's decision on the merits and therefore, we expect that the battle will likely continue, with a final resolution coming from the highest court in the land. In that regard it is important to note that two other Circuit Courts - the Third Circuit in the Frame case and the Tenth Circuit in the Goetz case have found the Beef Act to be constitutional and have rejected the claim that the Beef Act violates the First Amendment rights of cattle producers that pay the assessment. On an issue of such importance to U.S. agricultural community, to the balance of power between the legislative and judicial branches of government, and to the determination of what is and what is not government speech -- a question explicitly left unresolved by the Supreme Court in 2001 in United Foods - this is as it should be.

On October 22, 2003, a three-judge panel of the U.S. Court of Appeals for the Sixth Circuit, sitting in Cincinnati, ruled that the Pork Promotion Act violated the First Amendment free speech rights of pork producers.  In deciding Michigan Pork Producers Ass’n  v. Veneman, it upheld an October 2002 ruling of the District Court for Western Michigan.  In addition, the Sixth Circuit panel rejected arguments for limiting the nationwide injunction issued by the District Court that had enjoined the continued operation of the pork checkoff. 

The Sixth Circuit rejected the three arguments put forth by the government in support of the constitutionality of the Pork Act.  First, it rejected the argument that the Pork Act produced government speech.  The Court ruled that “the pork industry’s extensive control over the Pork Act’s promotional activities prevents their attribution to the government.  Second, it ruled that because the pork industry is not comprehensively regulated, it did not qualify for the application of the Glickman v. Wileman rule that permits the imposition of a mandatory assessment for promotion when done in the context of comprehensive regulation of the industry.  Finally, the Sixth Circuit ruled that the so-called Central Hudson test was not applicable because it held that the relaxed standards “applied to [government] limits on commercial speech ‘ha[d] never been applied to speech – commercial or otherwise – that is compelled.”  Having found the Act in violation of the First Amendment, the Sixth Circuit affirmed the District Court’s decision to strike down the Act in its entirety.  The government is expected to seek to have the case reheard by the entire Sixth Circuit and, failing that, to ask the Supreme Court to review the decision.

The World Trade Organization (WTO) Appellate Body will soon release its decision on the Section 201 case United States – Definitive Safeguard Measures on Imports of Certain Steel Products.  The decision could trigger retaliation against many U.S. agricultural exports.  Unlike other WTO decisions in which retaliation may be delayed by as much as 15 months, the punitive rebalancing tariffs against U.S. products in this case could be activated within days of the WTO Dispute Settlement Body adopting a ruling against the U.S., because this case was brought under WTO Safeguard provisions.  The Safeguard provisions provide an expedited process for compensation and rebalancing of tariffs to the countries claiming injury.  As much as 100 percent additional duty could be tacked on U.S. exports of dried vegetables, fresh apples, pears, fruit juices and rice.  Many other U.S. agricultural exports such as avocados, citrus, nuts pineapples, and grapes could be hit with 15 percent duties. The entire proposed retaliation list encompasses more than $2 billion of U.S. exports.  The full list of proposed duties can be viewed at: http://europa.eu.int/eurex/pri/en/oj/dat/2002/l_157/l_15720020615en00080024.pdf

The WTO Appellate Body ruling is expected in early November.  The WTO Dispute Settlement Body must then adopt the ruling.  The retaliatory “rebalancing” sanctions could be imposed on U.S. goods as early as December 2003.  It is estimated the U.S. would owe the WTO members between $2.2 and $3.8 billion in trade compensation. 

On June 20, 2002 the European Union (EU) notified the WTO Council for Trade in Goods of its intent to impose additional tariffs on U.S. goods five (5) days after any negative WTO Appellate Body decision in the steel case is adopted by the WTO Dispute Settlement Body (DSB).  Japan, China, Norway and Switzerland also weighed in with similar notices. 

How Did This Happen?

On October 22, 2001, the U.S. International Trade Commission (ITC) issued a determination that certain steel products were being imported into the U.S in such quantities as to cause injury to the U.S. industry.  On December 7, 2001, a majority decision by the ITC commissioners recommended the President impose a 20 percent tariff on most flat-rolled, cold-rolled and carbon and alloy steel products, to be phased out over four years.  Under Sections 201 and 203 of the Trade Act of 1974, 19 U.S.C. Section 2251 et se., the President has final authority to impose import relief . 

On March 5, 2002, the U.S. Administration through a Presidential Proclamation³  imposed 30 percent tariffs on most imported flat-rolled steel products and 15 percent tariff on rebar and stainless steel.  These tariffs were to be imposed for three years, during which time the rates would decline.  The tariffs were squarely aimed at steel imports from Europe, Japan, Korea, Brazil and Russia.  Imports from Canada, Mexico, Israel and Jordan were excluded from this tariff. 

Almost immediately, the European Union, Japan, Korea, Brazil cried fowl, and filed a case against the U.S. safeguard tariff with the WTO under the dispute settlement procedures.  In September 2002, the WTO established a Panel to review the case.  After consideration of the parties written submissions and oral arguments, the Panel issued an interim report on March 26, 2003, declaring that the U.S. steel safeguard violated the WTO Safeguards Agreement.  On July 11, 2003 the Panel issued its final report finding the U.S. steel safeguard measures were invalid⁴.   The U.S filed its appeal on August 11, 2003.  As this is a very complicated case, the Appellate Body may utilize its full 60 days or until November 10, 2003 before it issues a report. 

Under Article 17:14 of the Rules and Procedures Governing the Settlement of Disputes (DSU) which is Annex 2 to the WTO Agreement, the report must be adopted by the Dispute Settlement Body (DSB) and unconditionally accepted by the parties, “unless the DSB decides by consensus not to adopt the Appellate Body report within 30 days following circulation to Members.”⁵   Therefore, if there is no consensus, the DSB could adopt the Appellate Body’s report on or before December 10, 2003.  An adverse finding by the DSB against the U.S. would activate the punitive rebalancing tariffs against U.S. agricultural exports five days later.

WTO Panels have been very critical of previous attempts by countries to impose import restrictions.  All prior safeguards which have been challenged under the dispute settlement procedures, has declared the safeguard violated the WTO rules by the Panel or Appellate Body. 

If the retaliatory tariffs are imposed against U.S. products, it could seriously hinder the recent economic rebounds of the domestic economy. 

¹  Richard T. Rossier and McLeod, Watkinson & Miller represented several pro-checkoff beef producers who intervened in support of the government in Charter v. USDA, and argued that the Beef Promotion Act did not violate the Constitution. 

² Elizabeth Haws is an attorney with the firm and is the Manager and Counsel for the American Association of Crop Insurers.  Prior to joining McLeod, Watkinson & Miller, she was the General Counsel and Director of Government Relations for the National Grain Trade Council.  In 1992 she was Counsel and Legislative Assistant for Congressman Fred Grandy for agriculture and trade issues. 

³ Presidential Proclamation No. 7529, March 5, 2002, 67 Fed. Reg. 10553 (March 7, 2002).

⁴ The Panel report can be viewed at: http://www.wto.org/english/news_e/news03_e/panel_report_11july03_e.htm

⁵ DSU Article 17:14