* World Trade Organization says U.S. meat labeling illegal
* Canada, Mexico seek permission for trade retaliation
* U.S. lawmakers split over scrapping meat labeling rules (Adds market reaction, comment)
By Krista Hughes
WASHINGTON, May 18 (Reuters) - Canada and Mexico are readying trade sanctions against the United States after they won a meat labeling dispute on Monday, increasing pressure on the U.S. Congress to scrap the laws.
The World Trade Organization upheld a complaint by Canada and Mexico about U.S. laws requiring retailers to label meat with the country where the animal was born, raised and slaughtered, saying they discriminated against imported livestock.
Republicans, who have a majority in Congress, have signaled they may act to repeal the laws as early as this week, but consumer groups and many Democrats say they provide essential information for shoppers.
Canadian beef and pork industries say the rules add to expenses and have cut livestock exports, driving some farmers out of business and costing them more than $1 billion a year.
“Our governments will be seeking authorization from the WTO to take retaliatory measures against U.S. exports,” the Mexican and Canadian ministers for trade and agriculture said in a joint statement.
Canada has published a hit list of potential U.S. targets, including wine, chocolate, ketchup and cereal. Mexico has not done so but estimates damages similar to Canada‘s.
The Republican chairman of the House of Representatives Committee on Agriculture, Michael Conaway, called for swift action.
“It is more important now than ever to act quickly to avoid a protracted trade war with our two largest trade partners,” he said.
But the committee’s top Democrat, Collin Peterson, said he would oppose efforts to repeal the laws and said there were still steps to follow at the WTO before rushing into a decision.
Uncertainty about the U.S. reaction helped pressure Chicago Mercantile Exchange live cattle and lean hog futures lower. Allendale Inc chief strategist Rich Nelson said any material impact depended on the U.S. response, but rescinding the legislation could increase Canadian hog imports.
U.S. pork producers and the National Cattlemen’s Beef Association, along with business groups, are pushing for legislative action.
“Unless Congress acts now, Canada and Mexico will put tariffs on dozens of U.S. products,” said National Pork Producers Council President Ron Prestage. “That’s a death sentence for U.S. jobs and exports.”
But R-CALF USA, a small but vocal lobby group for U.S. cattle producers, said Congress should stand firm and not surrender “U.S. sovereignty.”
Consumer group Public Citizen pointed to a 2014 survey showing nine in 10 Americans supported the rules.
“Today’s WTO ruling ... effectively orders the U.S. government to stop providing consumers basic information about where their food comes from,” said Public Citizen’s Global Trade Watch Director Lori Wallach, adding that it showed the danger of free trade deals’ undermining consumer safeguards.
U.S. Trade Representative Chief Counsel Tim Reif said the office was considering all options and would continue to consult with members of Congress and the public.
The dispute stems from a 2009 U.S. requirement that retail outlets use labels such as “Born in Mexico, Raised and Slaughtered in the United States” to give consumers more information about the safety and origin of their food. (Reporting by Krista Hughes; Additional reporting by Theopolis Waters in Chicago; Editing by Susan Heavey and Lisa Von Ahn)