Under enforcement action in the United States-Mexico-Canada agreement, the U.S. Trade Representative announced May 25 the United States for the second time is requesting dispute settlement consultations with Canada over the handling of its dairy tariff-rate quota allocation measures, which deny allocation access to eligible applicants, including retailers, food service operators, and other types of importers, and impose new conditions on the allocation and use of the TRQs. The dairy industry says USTR should be ready to continue with additional actions to hold Canada accountable to its USMCA obligations if the consultations fail.
The United States is also challenging Canada’s failure to fully allocate its annual dairy TRQs; Canada is instead parceling out a few months’ quota at a time. Through these measures, Canada undermines the market access that it agreed to provide in the USMCA, USTR says in a statement.
“I am deeply troubled by Canada’s decision to expand its dairy tariff-rate quota restrictions,” USTR Ambassador Katherine Tai says. “We communicated clearly to Canada that its new policies are not consistent with the USMCA and prevent U.S. workers, producers, farmers and exporters from getting the full benefit of the market access that Canada committed to under the USMCA. We will continue to work with USDA to ensure that our dairy industry can bring a wide range of high-quality American products to Canadian customers.”
Secretary of Agriculture Tom Vilsack, who previously worked as the CEO of the U.S. Dairy Export Council, recently reaffirmed during meeting with his Canadian counterpart at the G7 meetings the U.S. position and requirement for Canada to make changes.
“I took some time to point out the language of the USMCA which clearly indicates that the TRQ was to be made available to all eligible applicants with the definition of eligible applicants being an entity that was active in the food and agriculture industry in Canada, which certainly would include retail,” Vilsack says he explained to Canadian Minster of Agriculture and Agri-Food Marie-Claude Bibeau.
Vilsack says Canada’s protectionist dairy policies are a top concern for USDA under the Biden administration. “Canada has failed to honor and implement its USMCA commitments by removing the trade restrictions that disadvantage and deter U.S. dairy producers and exporters from enjoying real and meaningful access to the Canadian market. Obtaining that access remains a top priority for the administration and we are considering all options available to achieve this objective,” Vilsack says.
This is the second dispute the United States has brought under the USMCA regarding Canada’s allocation of its dairy TRQs. USTR initiated a similar dispute settlement case exactly one year ago. In December, a USMCA dispute panel found Canada to be non-compliant with their dairy TRQ commitments under USMCA.
However, Canada was unwilling to reform their trade-distorting practices on dairy and continued to ignore the dispute panel. While the United States prevailed in the first dispute, Canada’s implementation measures and other actions have moved Canada further away from full compliance with its USMCA obligations, USTR explains.
The International Dairy Foods Association and the U.S. dairy industry have consistently rejected Canada’s manipulation and continue to urge the U.S. government to hold Canada accountable for trade-distorting practices that go against both the intent and the letter of the USCMA agreement.
If the United States and Canada are not able to resolve U.S. concerns through consultations, the United States may request the establishment of a panel under the USMCA. USTR officials worked closely with staff from USDA throughout the first dispute, and both agencies will continue working together, in consultation with stakeholders, to obtain Canada’s full compliance with its USMCA dairy commitments, USTR says.
Going back to the initial dispute settlement finding in December, the panel found that across more than a dozen categories of dairy products, 85 to 100% of the lower tariff quota were reserved for Canadian processors, putting Canada in breach of its USMCA commitments, explains IDFA.
For all of Canada’s dairy TRQs, Canada’s revised policies provide that only processors, further processors and distributors be able to apply for and be granted an allocation. This means that Canada continues to exclude other eligible applicants, such as retailers and food service operators. Additionally, for all of Canada’s dairy TRQs, Canada requires that applicants be active during all 12 months of a 12-month reference period, potentially excluding otherwise eligible applicants, in particular new entrants.
Finally, Canada has allocated only part of its dairy TRQs for calendar year 2022 despite USMCA requirements that Canada fully allocate the TRQs at the beginning of the year, and commitments to administer the TRQs in a transparent manner.
The Government of Canada has also used specious claims about nonexistent electric vehicle tax credits and other proposed U.S. policies not passed into law as a basis for market manipulating practices. IDFA rejects these claims.
Dairy industry applauds action
“On behalf of U.S. dairy, IDFA applauds the aggressive action taken today by USTR to hold Canada accountable for trade commitments made under USMCA and refusing to administer their dairy TRQs in a manner compliant with the agreement,” says Michael Dykes, president and CEO of IDFA. “However, the U.S. government cannot allow Canada to continue to deny U.S. exporters the access it promised under the agreement.
“USTR, the White House, and USDA must remain vigilant and continue to expose Canada’s non-transparent, market-distorting practices at every turn when it deviates from USCMA commitments. The U.S. dairy industry has made clear from the start that U.S. dairy exporters demand real TRQ reform that will permit the market access Canada agreed to. Our government officials must stay the course,” says Dykes.
IDFA has continued to call for the following policy options: allow retailers to serve as importers; remove market-based allocation policies that focus on processors; and encourage new TRQ entrants, among others.
The U.S. Dairy Export Council and the National Milk Producers Federation also welcomed the action.
“USTR and USDA have shown dogged determination to uphold USMCA despite Ottawa’s clear refusal to engage in real reform to come into compliance with the agreement,” says Krysta Harden, president and CEO of USDEC. “Dairy farmers and processors appreciate the clear bipartisan commitment from both the Administration and Congress for enforcing the USMCA and insisting on getting the full export benefits the United States so painstakingly negotiated. If we allow Canada to simply ignore its clear obligations, it will set a dangerous and damaging precedent for future trade disputes that will reach far beyond the millions of jobs supported by the American dairy industry.”
“Prime Minister Trudeau regularly pledges Canada supports a rules-based global order built on cooperation and partnership, yet Canada continues to flout these trade commitments and plays games rather than meet its signed treaty commitments,” adds Jim Mulhern, president and CEO of NMPF. “Dairy farmers appreciate USTR’s continued dedication to aggressively pursuing the full market access expansion into the Canadian market that USMCA was intended to deliver. At the same time, given Canada’s history of persistent violations and the high likelihood Ottawa will once again disregard its USMCA obligations, USTR and USDA must be prepared to deploy the strongest-possible retaliatory measures envisioned under the USMCA should this ‘whack-a-mole’ approach continue. Canada’s actions must have consequences.”