A USMCA dispute panel rejected U.S. charges that Canada bent the rules to unfairly restrict American sales in its dairy market despite agreeing in the free trade agreement to grant more access. “This is good news for Canada’s dairy industry and our system of supply management,” said Trade Minister Mary Ng and Agriculture Minister Lawrence MacAuley in a statement.
U.S. trade representative Katherine Tai said the administration “will continue to work this issue with Canada and we will not hesitate to use all available tools to enforce our trade agreements.” U.S. dairy groups said the ruling ratified obstructionism over compliance.
Dairy trade has been a divisive issue for decades between the nations. President Trump cited it as a reason to negotiate a replacement for NAFTA. The USMCA took effect on July 1, 2020, and the first challenge filed under it, in December 2020, was a U.S. complaint that Canada was not living up to its word on dairy. The United States won that challenge and filed a second one in May 2022, again contending that Canada complied on paper but not in practice with its USMCA agreements.
The United States contended that Canada, in administering 14 tariff-rate quotas for U.S. dairy products ranging from milk and ice cream to yogurt and milk powder, suppressed import volumes by limiting who was eligible for a share of the quota. For example, processors, distributors, and further processors qualified for a share, but not retailers or food service operators. Quotas were apportioned based on a company’s share of the Canadian market.
On each of the four issues raised by the United States, the USMCA panel said on Friday it “has found, based on the arguments presented and the panel’s analyses … that Canada’s measures are not inconsistent with” the trade pact.
There is no appeal mechanism under the USMCA, noted Ng and MacAuley, after saying they were “very pleased” with winning on all points.
In its complaint, the United States objected to Canada’s limitation on access to the tariff-rate quotas (TRQs), its use of a market-share allocation of the TRQs, its requirement for companies seeking a share of the TRQ to be in business for at least 12 months, and its method for re-allocating unused shares of the TRQs. Under the tariff-rate quota system, a specified amount of a product is allowed entry into a country with either no duty or a low tariff; higher tariffs are charged to imports above that threshold.
“The Government of Canada will continue to preserve and defend Canada’s supply management system, which supports producers by providing the opportunity to receive fair returns for their labour and investments, brings stability for processors, and benefits consumers by providing them with a steady supply of high-quality products,” said Ng and MacAuley.
“By allowing Canada to ignore its USMCA obligations, this ruling unfortunately set a dangerous and damaging precedent,” said Krysta Harden of the U.S. Dairy Export Council. “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.”
After Mexico, Canada is the second-largest U.S. food and agricultural trade partner. It is forecast to buy $27.5 billion in U.S. food and ag exports and send $39.5 billion in food and ag products to the United States this fiscal year.
The USMCA panel decision is available here.