Canada scored a major victory in the ongoing dispute with the United States over dairy market access. On Friday, a dispute resolution panel initiated by the U.S. under the terms of the U.S.-Mexico-Canada Agreement determined that Canadian rules do not unfairly limit American producers.

U.S. Trade Ambassador Katherine Tai says she is very disappointed in the ruling, adding that the United States still believes Canada’s policies hurt American dairy farmers.

“We will continue to work to address this issue with Canada, and we will not hesitate to use all available tools to enforce our trade agreements and ensure that U.S. workers, farmers, manufacturers, and exporters receive the full benefits of the USMCA.”,” she says. 

House Ag Committee Chair Glenn “GT” Thompson, R- PA, and Ranking Member David Scott, D- Ga., issued a joint statement on Friday also expressing their dismay.

“It is critical the U.S. encourage and enforce USMCA, and this decision allows Canada to continue their questionable protectionist practices that disallow fair access to Canadian markets,” they said.

Unsurprisingly, Canadian officials were singing a different tune. Canada’s Export Minister Mary Ng and Agriculture Minister Lawrence MacAulay issued a joint statement calling the decision good for their nation’s diary industry and its system of supply management.

“The Government of Canada will continue to preserve and defend Canada’s supply management system, which supports producers by providing the opportunity to receive fair returns for their labour and investments, brings stability for processors and benefits consumers by providing them with a steady supply of high-quality products,” Ng and MacAulay said.

Dispute predates trade agreement

American officials have long complained about Canada’s dairy tariff policy. When the USMDA was established in 2020, it set 14 different Tariff-Rate Quotas that allow set quantities of imports at lower tariff rates. U.S. officials contend Canada’s TRQ system unfairly favors Canadian producers.

In December 2021, a USMCA dispute settlement panel ruled in favor of the U.S., prompting Canada to revise is TRQ policies. However, U.S officials said the changes were not sufficient and requested consultations with Canada twice in 2022. After those consultations failed to produce an agreement, the U.S called for another dispute settlement panel in early 2023.

After hearing arguments from both nations, the panel released its final report on Nov. 10. Per USMCA guidelines, that report was made public on Nov. 24. Shortly afterwards, the National Milk Producers Federation and U.S. Dairy Export Council issued a joint statement condemning the decision while thanking the Biden administration and Congressional lawmakers who argued on behalf of dairy producers.

“It is profoundly disappointing that the dispute settlement panel has ruled in favor of obstruction of trade rather than trade facilitation,” NMPF President and CEO Jim Mulhern said. “We urge Ambassador Tai and (Agriculture) Secretary Vilsack to look at all available options to ensure that Canada stops playing games and respects what was negotiated.”

USDEC CEO Krysta Harden echoed those sentiments, adding that allowing Canada to “ignore its USMCA obligations” sets a dangerous precedent.

“This is unfortunately not the only shortcoming in Canada’s compliance with its international commitments,” she added. “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’s dairy export disciplines.”

While the dispute settlement panel’s ruling favored Canada, the decision was not unanimous. One of the three panelists agreed with the U.S. argument that the process Canada uses to determine TRQ allocations violates USMCA rules. That is of little solace to American dairy producers, who must now proceed under a system the contend is inherently unfair.