Dairy TRQ Round Two: U.S. files new complaint over Canadian dairy import rules

The U.S. has filed a new trade complaint over Canada’s freshly updated rules for dairy imports.

On Wednesday, U.S. Trade Representative, Katherine Tai, announced the U.S. has once again requested dispute settlement consultations with Canada under the Canada-U.S.-Mexico trade agreement (CUSMA or USMCA) over Canada’s dairy *tariff rate quota (TRQ) system, which was updated in mid-May following the American governments’ initial dairy TRQ challenge under the North American trade deal.

The U.S. says Canada’s updated plans to allocate its TRQs following the original dispute “have moved Canada further away from full compliance with its USMCA obligations.” The Americans say the new TRQ rules still deny access to retailers, food service operators and other types of importers, and that Canada should be allocating its dairy TRQs on an annual basis, rather than a few months at a time.

“I am deeply troubled by Canada’s decision to expand its dairy tariff-rate quota restrictions,” Tai says.  “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.”

The Canadian government, meanwhile, says it is following the rules that were agreed to in the North American trade deal that took effect in 2020.

“Canada has met its obligations under CUSMA to ensure that our TRQ system is compliant,” says Trade Minister Mary Ng. “We respect the right of the United States to initiate the dispute resolution mechanism as part of the agreement. Canada will actively participate in CUSMA’s consultation process and stand by our position to administer our TRQs in a manner that supports our dairy supply management system.”

Dairy Farmers of Canada has noted the updated allocation policy does not reserve any TRQs specifically for Canadian dairy processors “and is therefore fully compliant with the CUSMA dispute settlement panel decision earlier this year which required Canada to revisit its model that had pools dedicated to processors.”

U.S. dairy groups, who called for retaliatory trade action against Canada earlier this month, are applauding the Biden Administration’s move to file a second dispute.

“USTR and USDA have shown dogged determination to uphold USMCA despite Ottawa’s clear refusal to engage in real reform to come into compliance with the agreement,” says Krysta Harden, president and CEO of the U.S. Dairy Export Council. “Dairy farmers and processors appreciate the clear bipartisan commitment from both the Administration and Congress for enforcing the USMCA and insisting on getting the full export benefits the United States so painstakingly negotiated. If we allow Canada to simply ignore its clear obligations, it will set a dangerous and damaging precedent for future trade disputes that will reach far beyond the millions of jobs supported by the American dairy industry.”

Consultations are the first step in the dispute settlement process under CUSMA/USMCA. Canada once again has 15 days to respond regarding any complaints about perishable items, such as milk, and 30 days to respond for other products. If or when consultations fail, the U.S could once again request the creation of a dispute settlement panel to issue a ruling.

The Trump Administration filed the Americans’ initial CUSMA/USMCA complaint regarding Canada’s dairy TRQ system in December 2020. A dispute settlement panel was requested by the U.S. in May 2021. The panel issued its final report in January 2022, after which both countries claimed victory. The Canadian government proposed changes to comply with the panel ruling earlier this year, and published its new TRQ allocation rules on May 16, 2022.

*A tariff rate quota (or TRQ) is a two-tiered tariff system that allows a lower import levy on a specific quantity of imports. Beyond that amount, imports face a higher tariff rate. Canada negotiated the right to maintain TRQs on over a dozen types of dairy products in the new North American trade agreement.

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