Earlier this year, the United States prevailed in the first dispute settlement panel under the U.S. Mexico Canada Agreement that reviewed whether Canada’s allocation of its dairy tariff-rate quotas undermined the ability of American exporters to sell a wide range of dairy products to Canadian consumers. In Canada’s proposed changes, dairy groups say it will not fix the concerns identified in a dispute panel.

A dispute settlement panel earlier had found Canada was noncompliant with USMCA in its use of the quotas, unfairly limiting export opportunities for America’s dairy farmers and processors. Among other things, the proposed changes would not allow U.S. exporters to ship directly to the lucrative retail sector ― a major concern for Edge Dairy Farmer Cooperative’s members throughout the Midwest.

“It’s clear that Canada is not seeking to provide actual market-based allocations,” says Edge President Brody Stapel, a Wisconsin dairy farmer. “With passage of the USMCA, Edge was hopeful that the expanded quotas for dairy would get us closer to having real access to the Canadian market, including for high-value retail products. Excluding retailers from the new proposal will continue to keep out an important and growing segment of U.S. dairy.”

Under the 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. Less than a year after implementation of the agreement, the Biden administration requested a dispute settlement panel be established to consider Canada’s failure to comply with the dairy TRQ provisions.

Michael Dykes, president and CEO of the International Dairy Foods Association, says the Canadian plan is a nonstarter. “The plan makes true access to the Canadian market unattainable through a series of gimmicks. It comes as no surprise that Canada is unwilling to reform their trade-distorting practices on dairy,” Dykes says.

IDFA notes the plan makes minimal changes and continues to fall well short of Canada’s USMCA commitments, adding distributors as eligible applicants and allocating based on market share. IDFA remains deeply concerned that these proposed changes will continue to have the same outcome as the previous policy and market access will not be obtained.

From the onset of USMCA implementation, IDFA has sought the reform of Canada's TRQ administration by seeking an administration that does not have layers of overly prescriptive rules that distort the market and prevents U.S. dairy exporters from having full access to the quotas Canada agreed to in the USMCA. Canada's announced consultations on March 2 “fall well short of true reform,” IDFA says.

The U.S. government is in the process of deciding whether the proposal brings Canada into compliance and has not indicated when there will be a decision on next steps.

U.S. Trade Representative Ambassador Katherine Tai notes in a Brookings report essay enforcement and delivering on the dispute panel win will be crucial. “Delivering on this historic win will ensure that American dairy farmers get the full benefit of the USMCA to market and sell their products in Canada – a promise critical to securing the support of agricultural and rural stakeholders for the USMCA,” Tai says.

The National Milk Producers Federation and U.S. Dairy Export Council also sharply criticized Canada’s proposed changes they provided to the U.S. government on Feb. 2.

“Enough is enough. U.S. dairy producers are sick and tired of Canada’s game playing on dairy market access. From their irrelevant celebration that the panel upheld Canada’s right to retain a supply management system, a fact that no one has challenged and was not at issue in the USMCA case, to the continual efforts to undermine established trade commitments in order to favor Canadian dairy farmers, this pattern of behavior has gone on too long. All that American dairy farmers want is fair and good-faith implementation of USMCA’s dairy provisions. That doesn’t seem like a high bar, yet it appears to be insurmountable for Canada based on yesterday’s proposed dairy TRQ scheme changes,” says Jim Mulhern, president and CEO of NMPF. “We urge the administration to demand that Canada go back to the drawing board until it can genuinely deliver on providing the U.S. dairy industry the full benefit of USMCA.”  

“U.S. dairy farmers and manufacturers have only limited access to the Canadian market under USMCA. That makes it essential that Canada abide by its original commitments under that agreement,” adds Krysta Harden, president and CEO of USDEC. “Canada’s recent dairy TRQ proposal will not lead to that result. While it’s not surprising that Canada is trying to see just how little will be demanded of them, it’s essential that the U.S. government insist on real reforms.”