A dispute panel agreed with the claim brought forth by the Office of the United States Trade Representative (USTR) that Canada breached its obligations regarding dairy imports under the new United States-Mexico-Canada Agreement (USMCA). While Ottawa acknowledged the ruling by an international resolution panel, the matter is far from over as Canada has consistently fallen short on deliverables and its leaders have proven to be more interested in developing workarounds than abiding by agreements on dairy trade.

Before delving into the future, applause by the collective U.S. dairy community should be showered to Ambassador Katherine Tai and her team at USTR for making dairy trade the first case brought forth under USMCA’s dispute settlement panel. In the world of international trade, Ambassador Tai earned a hard fought win for U.S. dairy farmers, processors, and their employees.

At the heart of the review was Canada’s allocation of dairy tariff-rate quotas (TRQs). That allocation was far lower than agreed upon by the two countries. Under the USMCA, Canada has the right to maintain 14 TRQs on dairy products. At the same time, the country must allow a predetermined quantity of U.S. dairy product imports at a specified tariff rate . . . often at or near zero. Additional imports above TRQ thresholds are subject to significantly higher tariffs that limit additional imports.

The dispute resolution process addressed the U.S. contention that Canada was awarding the majority of the TRQs to processors who had little interest in purchasing U.S. dairy products. The signed USMCA trade agreement states that those TRQs must be available to anyone active in the Canadian food and agriculture sector.

The December 20 ruling released to the public on January 4 is rather clear: Canada must come into full compliance by February 3. If Canada does not come up with a workable remedy, the U.S. could begin a process of tariffs on specified Canadian products bound for the United States.

We will be watching what happens next. The U.S. and Canada are top trading partners, and dairy is just a drop in the bucket among the more than $500 billion in goods that cross the border each year. Will the U.S. actually escalate the matter in February should Canada balk at the ruling?

Equally concerning is the likelihood that Canada will spend more energy on developing a new workaround in its protectionist efforts to affirm its dairy supply management system. Also, this dispute ruling had no impact on the probability that Canada will continue to dump skim milk powder on the world market. In offloading a by-product in order to fill its domestic need for dairy fat, the country likely has been depressing prices for powder from New Zealand, the European Union, and the U.S.