US and Canada both claim victory in USMCA dairy dispute

By Jim Cornall

- Last updated on GMT

Under USMCA rules, Canada has 45 days from the date of the final report to comply with the Panel’s findings. Pic: Getty Images/Richard Hamilton Smith
Under USMCA rules, Canada has 45 days from the date of the final report to comply with the Panel’s findings. Pic: Getty Images/Richard Hamilton Smith

Related tags USMCA Dairy USDEC CUSMA

United States Trade Representative Katherine Tai said the US has prevailed in the first dispute settlement panel proceeding ever brought under the United States-Mexico-Canada Agreement (USMCA).

Tai said a USMCA panel agreed with the US States that Canada is breaching its USMCA commitments by reserving most of the in-quota quantity in its dairy tariff-rate quotas (TRQs) for the exclusive use of Canadian processors. 

However, the Canadian ministers of agriculture and trade claimed the panel “…ruled overwhelmingly in favor of Canada and its dairy industry.”

Tai said, “Enforcing our trade agreements and making sure they benefit American workers and farmers is a top priority for the Biden-Harris Administration​. 

“That is why this Administration filed the first-ever panel request under the USMCA. This historic win will help eliminate unjustified trade restrictions on American dairy products, and will ensure that the US dairy industry and its workers get the full benefit of the USMCA to market and sell US products to Canadian consumers.”

The US requested a panel be established on May 25, 2021 under Chapter 31 of the USMCA. The panel issued its final report to the parties on December 20, 2021. Under USMCA rules, Canada has 45 days from the date of the final report to comply with the Panel’s findings. From January through October 2021, the US exported $478m of dairy products to Canada, the third largest export destination for US dairy products.

A tariff-rate quota applies a preferential rate of duty to an “in-quota” quantity of imports and a different rate to imports above that in-quota quantity. Under the USMCA, Canada has the right to maintain 14 TRQs on the following 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 set aside and reserved a percentage of the quota for processors and for so-called “further processors,” which the US said is contrary to Canada’s USMCA commitments.

USTR officials worked closely with staff from the U.S. Department of Agriculture throughout the case. A USMCA panel agreed with the US that Canada’s allocation of dairy TRQs, specifically the set-aside of a percentage of each dairy TRQ exclusively for Canadian processors, is inconsistent with Canada’s commitment in Article 3.A.2.11(b) of the USMCA not to “limit access to an allocation to processors.” The Panel additionally found the Agreement makes no distinction between initial processors and “further processors,” and that therefore, the restriction in Article 3.A.2.11(b) applies to all processors, including specific subsets.

The three panel members were Elbio Rosselli, Julie Bédard, and Mark C. Hansen.

Canadian response

The Honourable Mary Ng, Canadian Minister of International Trade, Export Promotion, Small Business and Economic Development, and the Honourable Marie-Claude Bibeau, Minister of Agriculture and Agri-Food, issued a joint statement on the panel’s findings.

“We are pleased with the dispute settlement panel’s report, which ruled overwhelmingly in favor of Canada and its dairy industry. In particular, it is important to note that the panel expressly recognizes the legitimacy of Canada’s supply management system. The panel also confirms that Canada has the discretion to manage its TRQ allocation policies under CUSMA in a manner that supports Canada’s supply management system,”​ the ministers said.

“We have taken note of the panel’s finding regarding Canada’s practice of reserving TRQ pools for the use of dairy processors. Our government, as it proceeds with the next steps in the process, will continue to work closely with the Canadian dairy industry. Canada takes its commitments and obligations under international agreements seriously. These include those that Canada has under CUSMA with the United States, Canada’s closest trading partner.

“The Government of Canada will continue to stand up for its dairy industry, farmers and workers and the communities they support, and it will continue to preserve, protect and defend the supply management system.”

US dairy celebrates

The International Dairy Foods Association (IDFA), the International Cheese Council of Canada (ICCC), the Dairy Companies Association of New Zealand (DCANZ), and Eucolait said they supported the findings of the USMCA dispute panel.

“IDFA applauds the US government’s commitment to ensuring Canada’s dairy trade obligations are upheld,”​ said Michael Dykes, president and CEO of IDFA.

“IDFA is pleased to join our global dairy industry partners today in welcoming the USMCA panel’s findings and promoting Canadian dairy policy accountability.”

“The ICCC welcomes the panel’s findings and looks forward to Canada living up to all the obligations it has committed to in the USMCA,”​ said Patrick Pelliccione, the ICCC’s chairman.

“Our Members and Associate Members – small and medium-sized Canadian enterprises – look forward to TRQ policies that will ultimately reduce costs for Canadian consumers, deliver the stability and fairness that has been lacking in the existing system and allow importers to continue providing Canadians’ favorite cheeses at affordable prices.”

The National Milk Producers Federation (NMPF) and the US Dairy Export Council (USDEC) also supported the decision.

“The United States and Canada negotiated specific market access terms covering a wide variety of dairy products, but instead of playing by those mutually agreed upon rules, Canada ignored its commitments. As a result, US dairy farmers and exporters have been unable to make full use of USMCA’s benefits,”​ said Jim Mulhern, president and CEO of NMPF.

“Today’s decision is an important victory for US dairy farmers and the millions of Americans whose jobs are tied to the US dairy industry. America’s dairy farmers appreciate the Biden Administration’s dedication to preserving dairy export opportunities and the many members of Congress that have also stressed the importance of aggressive enforcement of dairy access rights in our trade agreements.”

“On behalf of America’s dairy farmers and manufacturers, we want to thank Ambassador Katherine Tai for launching the dispute settlement process and Congressional leaders for strongly supporting the need to uphold USMCA’s dairy provisions. We expect Canada to abide by its trade commitments so that the American dairy industry can fully access the Canadian markets just as USMCA promised,”​ said Krysta Harden, president and CEO of USDEC.

“While this is an essential victory, it is one step in a much longer journey. Our work to uphold the full benefits of USMCA continues, as we strive to reduce supply chain disruptions for our exports and ensure Mexico’s adherence to the dairy provisions of the USMCA, among other key matters.”

Edge Dairy Farmer Cooperative Edge president Brody Stapel also weighed in and said, “Edge is thankful for the persistent efforts of the Office of the US Trade Representative in defending the USMCA’s provisions and ensuring our dairy farmers see the full benefits of the agreement.

"When NAFTA was renegotiated and the USMCA was implemented, we were hopeful the new agreement would bring opportunities to our dairy farmer members, but that is only possible if both sides play by the rules. We are pleased to see that dispute settlement mechanisms put in place through the agreement are working, and hope that our trusted trading partner and neighbor will right the ship and come into compliance.”

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