In a setback for U.S. dairy industry, the U.S.-Mexico-Canada Agreement (USMCA) dispute settlement panel upheld Canada’s dairy quota administration practices. Today the panel announced that Canada was not obligated to make further changes.
An earlier panel ruled in January 2022 that Canada had improperly restricted access to its market for U.S. dairy products. In response, Canada made what the US Dairy industry believes were insufficient changes to its dairy tariff rate quota (TRQ) system, resulting in an outcome that still fell far short of the market access the U.S. expected to receive under USMCA. To address that shortcoming, the U.S. brought a second case to challenge the changes that Canada instituted.
In this second dispute initiated by the Office of the U.S. Trade Representative (USTR) under USMCA regarding Canada’s administration of its dairy tariff-rate quotas (TRQs), the United States refined and expanded its 2021 claims that Canada is not meeting its dairy TRQ administration commitments under the agreement. In the first dispute, Canada was challenged by the previous USMCA panel over the minimum percentages of quota the government was allocating to Canadian processors. In response, Canada immediately updated its rules resulting in even higher quantities of quota being allocated directly to Canadian processors. The United States consequently initiated this second dispute under the agreement, arguing that Canada unfairly limits quota access; that quota allocations are calculated in a manner that favors Canadian processors; that requirements are imposed on quota applicants that intentionally disadvantage importers; and that Canada’s reallocation procedures prevent quotas from filling. The panel’s report disagreed with all U.S. claims.
The National Milk Producers Federation quickly reacted to the decision. “It is profoundly disappointing that the dispute settlement panel has ruled in favor of obstruction of trade rather than trade facilitation,” said Jim Mulhern, president and CEO of NMPF. “Despite this independent panel’s adverse ruling, we’d like to thank the Biden Administration and the many members of Congress who supported us for their tireless pursuit of justice for America’s dairy sector. We urge Ambassador Tai and Secretary Vilsack to look at all available options to ensure that Canada stops playing games and respects what was negotiated.”
Also unhappy with the decision is the U.S. Dairy Export Council- believing that this decision greatly weakens the value of the USMCA to the US Dairy producer.
“By allowing Canada to ignore its USMCA obligations, this ruling has unfortunately set a dangerous and damaging precedent,” said Krysta Harden, president and CEO of USDEC. “We do however want to express our appreciation for allies in Congress and the Administration for their efforts and commitment to fighting for U.S. dairy. This is unfortunately not the only shortcoming in Canada’s compliance with its international commitments. We are committed to working with USTR and USDA to evaluate efforts to address Canada’s continued harmful actions that depress dairy imports while simultaneously evading USMCA’s dairy export disciplines.”
The two groups contend in a joint media release that “When first implemented in 2020, USMCA established 14 different TRQs, which allow a predetermined quantity of imports at a specified low tariff rate. The TRQ system that Canada implemented awarded the vast majority of TRQ volumes to Canadian processors and granted very limited access to TRQs to distributors – resulting in limited market access for U.S. exporters. Minor modifications to that system made in 2022 have continued that imbalanced approach.”
Also responding to the decision- House Agriculture Committee Chairman Glenn “GT” Thompson and Ranking Member David Scott today released the following statement after the USMCA dispute settlement panel issued its finding regarding Canada’s dairy tariff-rate quota (TRQ) allocation measures in favor of Canada:
“We are disappointed in today’s announcement and the decision of the dispute panel. It is critical the U.S. encourage and enforce USMCA, and this decision allows Canada to continue their questionable protectionist practices that disallow fair access to Canadian markets. We appreciate Ambassador Tai and the Biden Administration’s continued pursuit to ensure fair market access for U.S. dairy producers.”
