In a two-to-one vote, the U.S. failed in its attempt to challenge Canada’s tariff-rate quota (TRQ) allocation system and gain better market access under the United States-Mexico-Canada Agreement (USMCA). The outcome of the three-person panel’s decision was announced late last week and has been met by disappointment by the U.S. dairy industry.

The International Dairy Foods Association called it a “surprising setback for U.S. dairy,” which leaves the nation’s dairy exporters struggling to realize the market access granted in the trade agreement that was formed in 2020. At that time, USMCA established 14 TRQs, which permit a predetermined quantity of imports at a low tariff rate. The system Canada put into place awarded a majority of the quota to Canadian processors, leaving limited access to other distributors.

The U.S. won an earlier dispute taken up by the panel in 2021, in which the U.S. felt their neighbor to the north was not living up to the terms of the agreement when it came to dairy trade. Canada made adjustments to the TRQ but the U.S. filed another claim in 2022, contending that Canada was not acting in line with what was agreed upon.

U.S. Dairy Export Council’s president and CEO, Krysta Harden, said, “By allowing Canada to ignore its USMCA obligations, this ruling unfortunately set a dangerous and damaging precedent.” She continued, “We are committed to working with USTR and USDA to evaluate efforts to address Canada’s continued harmful actions that depress dairy imports while simultaneously evading USMCA dairy export disciplines.”

In the Badger State, U.S. Senator Tammy Baldwin released a statement sharing her disappointment. “This decision should have resulted in necessary improvements for market access for American dairy products in Canada, but instead sets a disturbing precedent that weakens the ability to use USMCA to push back against trade violations moving forward.”

Many dairy leaders thanked the Biden administration and allies in Congress for their work on this issue and commitment to the nation’s dairy industry. U.S. Trade Representative Katherine Tai assured that the administration will continue to work on this issue with Canada, an important trade partner for the U.S. In 2022, the U.S. exported $28.3 billion in agricultural products to Canada, about 15% of total U.S. agricultural exports.

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(c) Hoard's Dairyman Intel 2023
November 30, 2023
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