U.S. Launches Second Trade Dispute Over Canada’s Dairy TRQs

Trade Update • May 26, 2022

he United States is requesting, for a second time, dispute settlement consultations with Canada under the United States – Mexico – Canada Agreement (USMCA) to address dairy restrictions by Canada that are contrary to its USMCA commitments.

What is the U.S. Challenging?

Specifically, the United States is challenging:

• Canada’s dairy tariff-rate quota (TRQ) allocation measures, which deny allocation access to eligible applicants, including retailers, food service operators, and other types of importers, and impose new conditions on the allocation and use of the TRQs.

• Canada’s failure to fully allocate its annual dairy TRQs; Canada is instead parceling out a few months’ quota at a time. Through these measures, Canada undermines the market access that it agreed to provide in the USMCA.

U.S. Stance

“I am deeply troubled by Canada’s decision to expand its dairy tariff-rate quota restrictions,” Ambassador Katherine Tai said. “We communicated clearly to Canada that its new policies are not consistent with the USMCA and prevent U.S. workers, producers, farmers, and exporters from getting the full benefit of the market access that Canada committed to under the USMCA. We will continue to work with USDA to ensure that our dairy industry can bring a wide range of high-quality American products to Canadian customers.”

“Canada’s protectionist dairy policies are a top concern for the U.S. Department of Agriculture under the Biden-Harris Administration,” Secretary of Agriculture Tom Vilsack said. “Canada has failed to honor and implement its USMCA commitments by removing the trade restrictions that disadvantage and deter U.S. dairy producers and exporters from enjoying real and meaningful access to the Canadian market. Obtaining that access remains a top priority for the Administration and we are considering all options available to achieve this objective.”

Background

TRQs

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 types of 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.

Canada’s Restriction

In previous notices to importers, Canada set aside and reserved a percentage of the quota for processors and for so-called “further processors”, contrary to Canada’s USMCA commitments. As a result of this restriction, Canada has been undermining the value of its dairy TRQs for U.S. farmers and exporters since entry into force of the USMCA by limiting access to in-quota quantities negotiated under the Agreement.

Canada Changes Allocation of USMCA’s Dairy TRQs

Under the new CUSMA dairy TRQs policies, Canada has:

• Removed all allocation holder pools under all CUSMA dairy TRQs; and
• Included distributors as eligible under the CUSMA Industrial Cheeses TRQ.

However, the United States has rejected these changes as:

• Canada’s revised policies provide that only processors, further processors, and distributors will be able to apply for and be granted an allocation, which means Canada continues to exclude other eligible applicants, such as retailers and food service operators.
• For all of Canada’s dairy TRQs, Canada requires that applicants be active during all 12 months of a 12-month reference period, potentially excluding otherwise eligible applicants, in particular new entrants.
• Canada has allocated only part of its dairy TRQs for calendar year 2022 despite USMCA requirements that Canada fully allocate the TRQs at the beginning of the year, and commitments to administer the TRQs in a transparent manner.

Source: USTR