US Trade Ambassador Again Challenging Canada Over Dairy Import Rules

By Chris Clayton

The United States will once again challenge Canada's rules over dairy access with a new dispute settlement panel under the USMCA.

The panel will mark the second time the U.S. has challenged Canada's tariff-rate quota (TRQ) measures in the past two years. The TRQ essentially determines the rules and which businesses can import certain U.S. dairy products at a lower tariff rate.

After losing a dispute panel under the USMCA trade agreement in January 2022, Canada revised how it allocates its TRQ, but that imposed new conditions "effectively prohibiting retailers, food service operators and other types of importers from utilizing TRQ allocations. Through these measures, Canada undermines the market access it agreed to provide in the USMCA," the U.S. Trade Representative's Office stated.

"Although the United States won a previous USMCA dispute on Canada's dairy TRQ allocation policies, the Canadian government's revised measures have not fixed the problem," Ambassador Katherine Tai said. "With this panel request, we are utilizing our available tools to enforce our trade agreements and ensure that U.S. workers, farmers, processors, and exporters receive the full benefits of the USMCA."

A year ago, a dispute panel agreed with the U.S. position that Canada is not meeting its access commitments over TRQs because Canada's initial rule restricted product purchases exclusively for dairy processors. At that time, the dispute panel ruled, "Canada cannot, in substance, ring-fence" that reserved pool of dairy supply that only grants access to Canadian dairy processors.

Canada tweaked its TRQ rules last May, but the rules still exclude prospective buyers and provide advantages to Canada's processors over others. The U.S. in December again requested to meet with Canadian officials have raised concerns about the new TRQ process. U.S. and Canadian officials met Jan. 17, but were not able to resolve the issues.

"Canada is a valued and important trading partner, but they continue to fall short of their USMCA obligations by denying U.S. dairy producers and exporters fair access to the Canadian market," said Agriculture Secretary Tom Vilsack. "International trade is critical to economic growth and stability for American producers. This panel request is necessary to ensure Canada honors their commitments as they relate to dairy, and so American producers have greater export opportunities as intended."

Jim Mulhern, president and CEO of the National Milk Producers Federation, said the action by the U.S. Trade Representative's Office sends a signal the U.S. will continue fighting violations of the USMCA trade deal.

"Canada's TRQ allocation system is not only a violation of USMCA -- it directly harms American dairy farmers, processors, and other workers by unfairly restricting access to their market," Mulhern said.

All dairy exports to Canada for the first 11 months of 2022 amounted to $944 million, the highest on record and a 22% increase over the first 11 months of 2021, according to U.S. Census Bureau trade data.