U.S. Trade Representative Katherine Tai announced that the U.S. is triggering a second dispute settlement consultation under the United States-Mexico-Canada Agreement (USMCA) regarding additional practices deemed to be unfairly blocking key export opportunities for dairy farmers and processors.
A dispute settlement panel earlier found Canada was noncompliant with the USMCA in its use of the quotas (TRQs) for dairy, including not allowing U.S. exporters to ship directly to the lucrative retail sector. Through the course of the first dispute process, two other issues have arisen that trade officials are calling out ― the requirement that dairy quota applicants be active during all 12 months of a reference period, which would block particularly new applicants, and only allocating part of the TRQs for 2022.
“Edge is thankful for the continued vigilance of the Office of the U.S. Trade Representative in identifying Canada’s methods for skirting the dairy provisions in the USMCA. Commitments were made under the trade deal, and Canada needs to hold up its end of the bargain,” said Brody Stapel, president of Edge, which has aggressively pushed for enforcement action since the issue first arose nearly a year ago.
“Our farmers were meant to see major opportunities under USMCA ― an estimated 50 percent increase annually in the value of exports. Unfortunately, we’re still waiting. We can’t get the high-quality cheese from our members here in the Upper Midwest onto Canadian grocery store shelves. This remains a top priority for Edge, and we will continue to support trade officials in finding a path forward. A collaborative and robust trading relationship with our longtime partner is critical for both sides.”
Here are the disputed issues:
- Retailers, food service operators and some other eligible applicants are excluded from the TRQs. Instead, Canada is allocating the TRQs to entities that have little incentive to import, like processors.
- Applicants are required to 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 the calendar year 2022 despite USMCA requirements that full allocation be done at the beginning of the year, and commitments to administer the TRQs in a transparent manner.
Under USMCA, U.S. dairy producers were granted increased market access to Canada by way of preferential tariff rates for in-quota quantities of certain products, such as milk, cheese and skim milk powders. Last year, the Biden administration requested a dispute settlement panel be established to consider Canada’s failure to comply with the dairy TRQ provisions.
The panel determined that Canada’s implementation of the TRQs restricted access of U.S. dairy products by setting aside quotas specifically for Canadian processors. Per the findings of the panel, Canada is required to come into compliance. The country published a revised plan earlier this month that U.S. officials said still does not meet commitments.
Canada is the United States’ third largest export market for dairy products, worth about $478 million in 2021. The U.S. International Trade Commission estimated that the total would increase by $227 million when USMCA was implemented.