This is from the U.S. written submission in the COOL DSU Article 22.6 arbitration between the U.S. and Canada (DS384), although Mexico's argument in the parallel DS386 proceeding is referenced too:
118. Both Canada and Mexico's Methodology Papers add to the alleged trade effects of the amended COOL measure a novel, separate element. Both Methodology Papers argue to include in the level of nullification or impairment of benefits accruing under a trade agreement estimated economic effects in Canada or Mexico's domestic market, referred to in the Papers as "price suppression losses." With respect to the "price suppression losses," complainants allege that the amended COOL measure resulted in a surplus of animals in their respective domestic markets, which ultimately "suppress[ed] the domestic price of feeder cattle in Mexico," and "suppressed prices for livestock in Canada." Canada attributes CDA $1.023 billion (U.S. $802 million) of nullification or impairment to this "price suppression," while Mexico attributes $198 million of its total nullification or impairment estimate to domestic "price suppression." There is, however, no basis under the DSU for considering domestic price suppression as a part of the level of nullification or impairment of benefits under the TBT Agreement or the GATT 1994.
...
121. In this dispute, Canada and Mexico's request to include in the level of the suspension of concessions authorized an amount equivalent to alleged price suppression losses is inconsistent with the DSU and goes beyond any possible nullification or impairment of Canada and Mexico's benefits under the TBT Agreement and the GATT 1994. Canada and Mexico both make claims with respect to internal transactions within their domestic economies. As such, the transactions which would serve as the basis for Canada and Mexico's suggested price suppression losses are not lost exports to the United States, and thus are not properly included in a measurement of either Canada or Mexico's nullification or impairment of trade benefits under the covered agreements.
So it's not just lost exports that are part of the nullification or impairment; it's the lower prices that result from the excess supply in the domestic market. Of course, the U.S., as set out in the quote, says this approach is not permitted. It seems to me that this argument by Canada and Mexico is not completely unreasonable, but nevertheless they may have trouble convincing the Arbitrator to go along with it.
