he United States is requesting, yet again, 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?
With this new request, the United States expands its challenge of Canada’s dairy TRQ allocation measures to include Canada’s use of a market-share approach for determining TRQ allocations. Canada applies different criteria for calculating the market share of different segments of applicants, and Canada is failing to allow importers the opportunity to fully utilize TRQ quantities.
The United States continues to challenge Canada’s dairy TRQ allocation measures that impose new conditions on the allocation and use of the TRQs, and that prohibit eligible applicants, including retailers, food service operators, and other types of importers, from accessing TRQ allocations. Through these measures, Canada undermines the market access that it agreed to provide in the USMCA.
“We remain very concerned by Canada’s refusal to honor USMCA commitments,” Ambassador Katherine Tai said. “Rather than work toward meeting its obligations, Canada persists in implementing new dairy policies that are inconsistent with the USMCA, and which continue to deny U.S. workers, farmers, producers, and exporters the full benefits of market access they were initially promised. We remain steadfast in our commitment to use all tools available to enforce our trade agreements and ensure that our dairy industry can offer a wide range of high-quality American products to Canadian customers.”
“Canada remains in violation of its commitments under the USMCA by not removing its trade restrictions on American dairy producers,” Secretary of Agriculture Tom Vilsack said. “Obtaining access to the Canadian market for U.S. producers and exporters is an important priority for this Administration and the U.S. Department of Agriculture and the Office of the U.S. Trade Representative will continue to work in lockstep and use every tool at our disposal to achieve market access.”
The United States has raised concerns under the USMCA previously about Canada’s dairy TRQ allocation measures. In January 2022, a USMCA dispute settlement panel found Canada’s dairy TRQ allocation measures to be inconsistent with Canada’s USMCA obligations. In response to the adverse findings of the panel, Canada introduced changes to its TRQ allocation measures, but these new policies are 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. Since initiating those consultations, the United States has identified additional areas of deep concern, and this new request for consultations provides an avenue to formally address U.S. concerns. If the United States and Canada are not able to resolve the matter through consultations, the United States may request the establishment of a panel under the USMCA.
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.
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.