USMCA dispute panel rules Canada doesn't need to change dairy import process

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A dispute panel convened to settle U.S. concerns over how Canada handled its dairy tariff rate quotas (TRQs) under the Canada-United States-Mexico Agreement (CUSMA/USMCA) has ruled that Canada is not obligated to make further changes, following an earlier ruling in December 2021 that Canada’s handling of TRQs was “inconsistent” with the trade deal.

The ruling, made public on Friday, was in response to a second challenge by the U.S. under the North American trade deal.

When first implemented in 2020, deal 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 limited access to TRQs to distributors – resulting in limited market access for U.S. exporters.

Canada made changes to its TRQ allocation process after the first dispute settlement ruling, but the U.S. filed a second complaint, arguing the new policies were still inconsistent with Canada’s obligations.

Canada’s trade and agriculture ministers and the Dairy Farmers of Canada have all released statements welcoming the decision.

“Canada is very pleased with the dispute settlement panel’s findings, with all outcomes clearly in favour of Canada. This is good news for Canada’s dairy industry and our system of supply management,” say Mary Ng, Minister of Export Promotion, International Trade and Economic Development, and Lawrence MacAulay, Minister of Agriculture and Agri-Food, in a press release.

“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.”

On the U.S. side, Agriculture Secretary Tom Vilsack says he’s disappointed with the panel ruling, noting the U.S. filed the second case to “refine and expand upon our win in the first case.”

U.S. Dairy Export Council and the National Milk Producers Federation say the ruling weakens the trade agreement’s value to the U.S. dairy industry.

“It is profoundly disappointing that the dispute settlement panel has ruled in favour of obstruction of trade rather than trade facilitation,” says 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.”

Read the full report by the panel, here.

“By allowing Canada to ignore its USMCA obligations, this ruling has unfortunately set a dangerous and damaging precedent,” says Krysta Harden, president and CEO of USDEC. “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.”

While the panel ruling is final, the issue of dairy TRQs will likely be part of upcoming discussions between Canada and the U.S. as the North American trade deal is due for its first six-year review in 2026.

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