US asks for dispute resolution in USMCA dairy spat with Canada

By Jim Cornall contact

- Last updated on GMT

The US is challenging Canada’s allocation of dairy tariff-rate quotas.  Pic: Getty Images/Lemanieh
The US is challenging Canada’s allocation of dairy tariff-rate quotas. Pic: Getty Images/Lemanieh

Related tags: USMCA, Canada, Dairy

Some dairy groups in the US are happy after the US advanced the first USMCA dispute panel on dairy, while others are still pressing for the dispute to be dropped.

Ambassador Katherine Tai said the US has requested and established a dispute settlement panel under the United States-Mexico-Canada Agreement (USMCA) to review measures adopted by the Government of Canada that it said undermine the ability of American dairy exporters to sell a wide range of products to Canadian consumers.

The US is challenging Canada’s allocation of dairy tariff-rate quotas (TRQs), specifically the set-aside of a percentage of each dairy TRQ exclusively for Canadian processors.  These measures, according to the US, deny the ability of US dairy farmers, workers, and exporters to utilize the TRQs and realize the full benefit of the USMCA. 

“A top priority for the Biden-Harris Administration is fully enforcing the USMCA and ensuring that it benefits American workers,”​ said Ambassador Tai.

“Launching the first panel request under the agreement will ensure our dairy industry and its workers can seize new opportunities under the USMCA to market and sell US products to Canadian consumers.”

Under the USMCA, Canada has the right to maintain 14 TRQs on dairy products: milk, cream, skim milk powder, butter and cream powder, industrial cheeses, cheeses of all types, milk powders, concentrated or condensed milk, yogurt and buttermilk, powdered buttermilk, whey powder, products consisting of natural milk constituents, ice cream and ice cream mixes, and other dairy.

In notices to importers that Canada published in June and October 2020 and May 2021 for dairy TRQs, Canada sets aside and reserves a percentage of the quota for processors and for “further processors.”  Kai said this undermines the value of Canada’s dairy TRQs for US farmers and exporters by limiting their access to in-quota quantities negotiated under the USMCA. 

Edge Dairy Farmer Cooperative was one of the groups applauding the announcement.

“International trade is key to economic growth and stability for our dairy farmers and processors. That’s why additional market access into Canada is an important part of USMCA,”​ Edge president Brody Stapel said.

“Edge and our farmers appreciate USTR’s commitment to holding Canada to the agreement and giving the US dairy community greater export opportunities as intended.”

The National Milk Producers Federation (NMPF) had also urged Tai to initiate a dispute settlement case with the Canadian government.

In a letter to Ambassador Tai, other US dairy industry groups pushed for the establishment of a Dispute Settlement Panel.

“The U.S. dairy industry proudly worked with USTR and members of Congress on a bicameral and bipartisan basis during the 116th Congress to secure strong, enforceable dairy provisions in the USMCA. Even while we knew it was important to secure strong text in the agreement, we also knew it was going to be just as critical for the provisions to be properly implemented and enforced. This is why we need USTR to take bold action to ensure the U.S. dairy industry fully benefits from the hard-fought wins included in the USMCA,”​ said Krysta Harden, president and CEO of USDEC.

“America’s dairy farmers appreciated USTR initiating consultations with Canada on its dairy TRQ allocation measures and the decision to hold USMCA Free Trade Commission discussions to pursue reforms. But Canada has always been obstinate on dairy, and at this stage it is increasingly clear that further action is needed to ensure a fair and transparent enforcement of USMCA. This is why America’s dairy farmers are asking USTR to initiate a dispute settlement case should talks with Canada this week fail to yield a full resolution,”​ said Jim Mulhern, president and CEO of NMPF.

However, signatories to another letter to the USTR and USDA on Canadian dairy tariff rate quotas, take a different approach.

Their letter, signed by 21 farmer, worker and civil society organizations in the dairy industry, as well as the broader US food system, said, “Dairy farmers and farm workers are fighting for their survival, literally and figuratively, while US trade and agriculture policy is being leveraged against them for the benefit of corporate interests. COVID-19 has disproportionately impacted food chain and farm workers in North America, crippling corporate food system distribution and processing. After more than six years of sinking farm prices (often below the cost of production), mounting debt, and rising bankruptcies, these failures of the highly consolidated food system only added to the economic pain of family-scale dairy producers.

“In the final days of 2020, the Trump administration exacerbated these challenges by filing the first petition for dispute settlement under NAFTA 2.0, or the U.S.-Mexico-Canada Trade Agreement (USMCA), aimed toward undermining Canada’s dairy supply management system. This action, if implemented, would imperil the livelihoods of Canadian farmers and unionized dairy processing workers, pitting US dairy farmers against working families across the border.”

The letter opposes the US government action against Canada, and is calling on the Biden-Harris administration to rescind the action and instead advance strong worker rights protection and dairy policy reform policy in the US.

It continues: “The US government has been trying to dismantle Canada’s federal and sub-federal supply management systems for years, not to benefit US farmers or workers, but rather corporate dairy interests. During the final USMCA negotiations in 2019, the Trump administration touted the free trade agreement as a “win” for struggling US dairy producers, because Canada had conceded a limited increase in market access under significant political pressure.

Independent US dairy producers rejected this use of trade policy to undermine farmer and worker livelihoods abroad. Nonetheless, the US and Canadian governments settled on a compromise, embodied in Chapter 3 of the trade agreement, which outlines a system of “tariff rate quotas” (TRQs) that require Canada to import more milk protein concentrates (MPCs, a low-cost ingredient often used in the manufacture of cheese and yogurt). Ottawa published a breakdown of TRQ “allocations” in mid-2020, the Trump administration disputed them, and began the process of USMCA dispute settlement, alleging violations of the market access concessions. The Biden-Harris administration has now inherited this dispute process, with both governments currently in consultations.”

The letter said continuing to pursue this complaint is out of step with the new administration’s stated commitments to reform the US trade agenda to be pro-worker rather than a business as usual approach that actively favors multinational corporations.

It said the Biden-Harris administration must recognize the significant economic toll the last three decades of US trade policy has taken on independent, family-scale food producers in the US, particularly in the dairy sector.

“This is the moment for the administration to direct USDA and the USTR to change direction: instead of undermining Canada’s dairy system, they should take a page from Ottawa's popular playbook. We call on them to work with dairy farmer organizations and Congress to design and implement dairy pricing reform and market management policies that protect small farmers, ensure fair prices, and support working families and thriving rural communities.”

 It concludes by stating, “Independent dairy producers have long demanded these reforms. The Biden-Harris administration must cut ties with corporate dairy, heed this call for US dairy policy reform, and take immediate action to strengthen worker rights and farmer livelihoods across North America.”

The group consists of California Dairy Campaign, California Farmers Union, Campaign for Family Farms and the Environment, Community Alliance for Global Justice, Dairy Conference, International Brotherhood of Teamsters, Family Farm Defenders, Farm Aid, Farm and Ranch Freedom Alliance, Farm Women United, Food and Water Watch, Institute for Agriculture and Trade Policy, Iowa Citizens for Community Improvement, Land Stewardship Project, Missouri Rural Crisis Center, National Dairy Producers Organization, National Family Farm Coalition, Northeast Organic Farming Association – Vermont, Northwest Atlantic Marine Alliance, Rural Vermont, Washington Fair Trade Coalition and Wisconsin Farmers Union.

While representatives of the group urging the dispute to be shelved told DairyReporter they are disappointed by the ruling, they said this was only the beginning of the second stage, and they would continue to press the USTR to drop the complaint.

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