United States Trade Representative Katherine Tai announced last week that a dispute settlement panel established under the United States – Mexico – Canada Agreement (USMCA) has released a report regarding Canada’s dairy tariff-rate quota (TRQ) allocation measures. In this panel, the United States challenged Canada’s dairy TRQ allocation measures, which use a market-share approach for determining TRQ allocations, which prohibits retailers, food service operators, and other types of importers from utilizing TRQ allocations.
Two of the three panelists found that Canada’s measures do not breach any of the USMCA commitments that the United States cited. One panelist, however, agreed with a principal U.S. claim challenging Canada’s narrow definition of eligible applicants, which excludes a substantial number of importers eager to bring higher-value, retail-ready U.S. dairy products to Canadian consumers.
Last year, Canada revised its tariff rate quota allocation system after a dispute panel found the country’s measures were inconsistent with USMCA trade commitments, but this latest ruling means Canada is not obligated to make further changes.
"I am very disappointed by the findings in the USMCA panel report released today on Canada’s dairy TRQ allocation measures,” Ambassador Katherine Tai said. “Despite the conclusions of this report, the United States continues to have serious concerns about how Canada is implementing the dairy market access commitments it made in the Agreement. While the United States won a previous USMCA dispute on Canada’s dairy TRQ allocation measures, Canada’s revised policies have still not fixed the problem for U.S dairy farmers. 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.”
“The United States won the first USMCA case on Canada’s dairy TRQ allocation system with the ultimate goal of securing fair market access for U.S. dairy farmers, workers, processors, and exporters. Although we are disappointed in the outcome of this second case, we brought this case to refine and expand upon our win in the first case,” said Agriculture Secretary Tom Vilsack. “We will continue to voice deep concerns about Canada’s system. We remain focused on securing the market access we believe Canada committed to under the USMCA and we will continue exploring all avenues available to achieve that goal.”
Background
A tariff-rate quota applies a preferential rate of duty to an “in-quota” quantity of imports and a different rate to imports above that in-quota quantity. Under the USMCA, Canada has the right to maintain 14 TRQs on the following dairy products: milk, cream, skim milk powder, butter and cream powder, industrial cheeses, cheeses of all types, milk powders, concentrated or condensed milk, yogurt and buttermilk, powdered buttermilk, whey powder, products consisting of natural milk constituents, ice cream and ice cream mixes, and other dairy.
The United States has expressed concerns about Canada’s dairy TRQ allocation measures since prior to entry into force of the USMCA. In December 2021, a USMCA dispute settlement panel found Canada’s dairy TRQ allocation measures inconsistent with Canada’s USMCA obligations. In response to the adverse findings of the panel, Canada introduced changes to its TRQ allocation measures, but the United States considered that Canada’s revised policies were still inconsistent with Canada’s obligations under the USMCA.
In May 2022, the United States requested consultations with Canada to address its updated dairy TRQ allocation measures. Following those consultations, Canada ceased its USMCA-inconsistent partial allocation of calendar year 2022 dairy TRQs, which the United States had raised in the May 2022 consultations request. In December 2022, the United States again requested consultations with Canada after identifying additional areas of concern with Canada’s dairy TRQ policies. The United States established a panel in January 2023. After receiving written submissions and meeting with the disputing parties, the USMCA panel issued its final report on November 10, 2023, and pursuant to Article 31.17.6 of the USMCA, the parties made the panel report public on November 24, 2023.
In the report, the panel found that Canada’s measures are not inconsistent with the USMCA provisions cited by the United States. The panel split on the U.S. claims that Canada’s exclusion of retailers, food service operators, and other entities from eligibility and its historical market share approach to allocate Canada’s USMCA dairy TRQs breach Canada’s USMCA obligations. A dissenting panelist agreed with the United States that by excluding retailers and others, Canada was breaching its commitment to make its dairy TRQs available to all applicants active in the Canadian food or agriculture sector.
Under the USMCA, the report of the panel is now final.
USTR officials have worked closely with staff from the U.S. Department of Agriculture on this matter, and both agencies will continue working together, in consultation with stakeholders, to ensure that Canada complies fully with its USMCA dairy commitments.
All information is sourced from USTR.
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