WINNIPEG, Manitoba (Reuters) – Canada is asking the World Trade Organization to resolve a dispute with Washington over a country-of-origin labeling law that Ottawa says has slashed livestock exports to the United States.

The law requires companies to track and notify customers of the country of origin of meat and other farm products at each major stage of production, including in grocery stores.

That has created new costs for U.S. meat packers to segregate and label livestock supplies, resulting in some refusing to buy Canadian animals.

“Canadian farmers and ranchers produce top-quality food and they are facing unfair discrimination because of (the) legislation,” said Canada’s agriculture minister, Gerry Ritz, in a statement on Wednesday announcing the WTO request.

Canada’s cattle exports dropped 31.7 percent and hog exports fell 34.6 percent through the first half of the year, according to Statistics Canada. The United States is by far Canada’s biggest livestock export market.

The United States regrets Canada’s decision to seek legal action, top U.S. officials said on Wednesday.

“We believe that our implementation of (the labeling law) provides information to consumers in a manner consistent with our World Trade Organization commitments,” U.S. Agriculture Secretary Tom Vilsack and U.S. Trade Representative Ron Kirk said in a joint statement.

Canada objects to the labeling law on the basis that it doesn’t recognize the integration of the North American livestock market, Ritz said in a later interview.

“The industry on both sides of the border agree we need each other,” he said.

The U.S. now has 60 days to appeal Canada’s action, Ritz said. He said a resolution could come sometime next year at the latest.

The WTO’s Dispute Settlement Body will consider the panel request on October 23.

Canadian hog and cattle farmers have struggled under a number of difficult economic conditions, including some shared by U.S. livestock farmers like low prices, high feed costs and the continued closure of some export markets over concerns about mad cow disease.

“This is important. We’ve been asking the federal government to do this for some time,” said Andrew Dickson, general manager of the Manitoba Pork Council.

The U.S. National Cattlemen’s Beef Association, which has long opposed the labeling law, said it worried the dispute could eventually lead to retaliation against U.S. beef in Canada and Mexico, the top two U.S. export markets.

The group wants the USDA to do an economic analysis of the costs of implementing the law.

The request for a panel follows two rounds of unsuccessful WTO consultations with the United States.

Ritz said he would continue seeking a diplomatic resolution.

“Diplomacy is probably still the best way to move forward but you also use the tools at your disposal.”

(Additional reporting by Doug Palmer and Roberta Rampton in Washington; editing by Frank McGurty)