A ruling by a U.S-Mexico-Canada Agreement dispute panel will allow Canada to continue restricting dairy access that the U.S. negotiated for in the USMCA pact.

The decision weakens the agreement’s value to the U.S. dairy industry, according to the National Milk Producers Federation and the U.S. Dairy Export Council (USDEC).

In January 2022, a USMCA panel ruled that Canada had improperly restricted access to its market for U.S. dairy products. The case is the first of any kind brought before the USMCA panel and was launched with broad bipartisan support.

Canada made changes to its dairy tariff rate quota (TRQ) system in response to the ruling, but NMPF said the actions still fell “far short” of the market access the U.S. expected to receive under USMCA.

“The bottom line is we negotiated the deal, and the deal needs to be played out in full faith,” says Ernie Birchmeier, MFB senior industry relations specialist. “We need to honor all parties involved in these trade negotiations and need to honor the decisions that were made.”

The U.S. brought a second case to challenge the changes that Canada instituted, but the recent ruling found that Canada was not obligated to make further changes.

“It is profoundly disappointing that the dispute settlement panel has ruled in favor of obstruction of trade rather than trade facilitation,” says Jim Mulhern, president and CEO of NMPF.

“Despite this independent panel’s adverse ruling, we’d like to thank the Biden administration and the many members of Congress who supported us for their tireless pursuit of justice for America’s dairy sector. We urge Ambassador [Katherine] Tai and Secretary [Tom] Vilsack to look at all available options to ensure that Canada stops playing games and respects what was negotiated.”

Since the U.S. Trade Representative initially launched the first dispute settlement case against Canada in 2021, USDEC and NMPF have worked with USTR, USDA and Congress to try to secure full use and value of USMCA’s dairy TRQs for American dairy producers and processors.

“By allowing Canada to ignore its USMCA obligations, this ruling has unfortunately set a dangerous and damaging precedent,” said Krysta Harden, president and CEO of USDEC, who also expressed appreciation to the White House and Congress for their support of U.S. dairy.

“This is unfortunately not the only shortcoming in Canada’s compliance with its international commitments. 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.”

‘Unacceptable’ to American farmers

USMCA established 14 different TRQs when it was established in 2020, allowing a predetermined quantity of imports at a specified “low tariff” rate. Canada’s TRQ system awarded most volumes to Canadian processors and granted limited access to distributors — resulting in limited market access for U.S. exporters.

Minor modifications to that system made in 2022 have continued that imbalanced approach, according to NMPF. House Ways and Means Committee Chairman Jason Smith, R-Mo., agrees.

“The panel’s decision leaves in place a status quo of Canadian dairy restrictions that is simply unacceptable. American farmers deserve a level playing field, and Canada must uphold both the spirit and the letter of its obligations under USMCA,” Smith wrote in a statement.

“Improved agricultural market access and enhanced enforcement mechanisms were key victories achieved under the USMCA for American farmers and workers. They were some of the many reasons the agreement received overwhelming bipartisan support. I will continue working with partners and stakeholders to ensure transparent and equitable access to Canadian markets for U.S. dairy producers.”

Source: MFB