A U.S-Mexico-Canada Agreement (USMCA) panel has ruled in favor of Canada in a long-simmering dispute with the U.S. dairy industry over market access. In the ruling, released Nov. 24, the USMCA dispute panel said that Canadian tariff-rate quota (TRQ) allocations do not breach commitments established under the agreement.
The U.S. had challenged Canada’s measures, which use a market share approach for determining TRQ allocations and prohibits retailers, food service operators and other types of importers from utilizing TRQ allocations. While the panel was split regarding U.S. claims that exclusion of Canada’s retailers, food service operators and other entities were a breach of USMCA commitments, the latest ruling means Canada is not obligated to make further changes to its TRQs. The decision is final and cannot be appealed.
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 limited access to TRQs to distributors – resulting in limited market access for U.S. exporters.
Stemming from a complaint first filed in May 2021 by the Office of the U.S. Trade Representative (USTR), the latest decision essentially reverses a previous USMCA settlement panel ruling, issued in December 2021, that found Canada was improperly restricting access to U.S. dairy products in violation of the USMCA.
Following that decision, Canada made adjustments to TQRs, but U.S. dairy and trade leaders said those changes were inadequate. Subsequent consultation between the two countries to reach a settlement failed in 2022, and the U.S. requested establishment of a dispute panel in January 2023. The panel included one member each from Canada, Mexico and the U.S.
Canadian trade and agricultural leaders said they were pleased with the panel's latest ruling. (The agreement is called the Canada-U.S.-Mexico Agreement [CUSMA] in Canada.)
"Canada is very pleased with the dispute settlement panel's findings, with all outcomes clearly in favor of Canada," Trade Minister Mary Ng said in a statement. "This is good news for Canada's dairy industry and our system of supply management."
In a short statement, David Wiens, president of Dairy Farmers of Canada (DFC), said that the organization welcomed the decision of the panel.
U.S. trade and dairy organization leaders expressed disappointment in the ruling.
"I am very disappointed by the findings in the USMCA panel report on Canada’s dairy TRQ allocation measures,” said U.S. Trade Ambassador Katherine Tai said. “We will continue to work to address this issue with Canada, and we will not hesitate to use all available tools to enforce our trade agreements and ensure that U.S. workers, farmers, manufacturers and exporters receive the full benefits of the USMCA.”
“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 National Milk Producers Federation (NMPF). He urged Tai and U.S. Secretary of Agriculture Tom Vilsack to continue look at all available options.
“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 the U.S. Dairy Export Council (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.”