USDA Rule Eases Dairy Imports

Trade Update • August 30, 2022

The U.S. Department of Agriculture’s Foreign Agricultural Service (FAS) has issued a interim final rule that amends the regulations that provide for the issuance of licenses to import certain dairy articles under tariff-rate quotas (TRQs) as set forth in the Harmonized Tariff Schedule of the United States (HTSUS). The rule suspends for an additional year the historical license reduction provision which would otherwise apply beginning with the 2023 quota year. This change will allow license holders additional time to adjust to challenging market conditions impacting the dairy sector.

This rule is effective August 30, 2022. Importers can submit their comments to FAS on or before September 29, 2022 here.

FAS TRQs and Licensing

Under FAS Dairy TRQs Import Licensing regulations, dairy articles may be entered into the United States at the low-tier tariff only by or for the account of a person, as defined in the regulations, to whom such licenses have been issued and only in accordance with the terms and conditions of the regulations.

FAS issues three types of dairy import licenses: historical, non-historical (lottery), and designated. For all three license types, persons must apply each year between September 1 and October 15. Licensees must (i) apply for the license each year, (ii) pay an annual fee, and (iii) have imported at least 85 percent of the final license amount from the previous year. To avoid ineligibility due to the 85-percent rule, licensees may surrender up to 100 percent of the license, but must import 85 percent of any quantity not surrendered.

2023 Quota Year and the Interim Final Rule

FAS has suspended Section 6.25(b) of the regulations on four previous occasions, most recently for an additional seven years encompassing the 2016-2022 quota years, and extended this suspension on 2023 end of year quota.

Section 6.25(b) of the regulations provides that beginning of a new quota year, any historical licensee who surrenders more than 50 percent of the license amount for the same item from the same country during at least three of the most recent five years will be issued a historical license thereafter in an amount equal to the average amount imported under that license for those five quota years.

FAS recognizes the duties on dairy products, levied at 25% ad valorem, contributed to the volatile market conditions U.S. dairy importers have recently faced. Several dairy commodities that were subject to these retaliatory tariffs stand to lose historical quantity if Section 6.25(b) is not suspended. Overall, FAS estimates that allowing Section 6.25(b) to go into effect in quota year 2023 would result in the reduction or elimination of approximately 18% of historical licenses. In addition, FAS analysis shows that fill rates for the lottery category for those commodities that stand to lose the most historical licenses remain low, when viewed over the course of the past five quota years.

If you have any questions about dairy TRQs or application for licensing, we are always here to help, contact us.