The Biden administration elevated a long-simmering dispute over Canadian dairy quotas on Tuesday by calling for a three-judge panel to decide the matter under USMCA rules. It was the first time that a dispute settlement panel was invoked under the trade agreement that took effect last July 1.
Canada agreed as part of the new NAFTA to allow greater U.S. access to its dairy market. The United States says Canada manipulated its tariff-rate quotas to constrain imports below USMCA levels. Canada says “our policies are in full compliance.” Bilateral consultations, requested last year by the Trump administration, were unsuccessful.
The two nations, although among the world’s largest trading partners, have feuded for years over dairy and other agricultural products. Canada is forecast by the USDA to account for 15.5 cents of every $1 in U.S. agricultural trade this year. While the United States extols the free market in agriculture, Canada uses a supply-management system to limit dairy, poultry and egg production. The system includes import controls so its farmers are assured of a stable price for their products. American dairy farmers say they could provide a lower-cost product.
U.S. trade representative Katherine Tai said the demand for a dispute panel “will ensure our dairy industry and its workers can seize new opportunities under the USMCA to market and sell U.S. products to Canadian consumers.” The panel could rule by the end of the year.
International Trade Minister Mary Ng of Canada said the trade agreement, known as CUSMA in Canada, preserved the supply-management system while providing additional access for U.S. products. “We will vigorously defend our position during the dispute settlement process.”
At issue in the dispute are so-called tariff-rate quotas (TRQs), which allow a specified amount of goods to enter a country for free or at low tariff rates; higher duties are charged for imports that exceed the trigger level. Under the USMCA, Canada set TRQs on 14 types of dairy products, including milk, cream, and butter. Tai’s office says Canada unfairly reserved a portion of the TRQs for processors, thereby reducing the volume available to U.S. farmers and exporters.
U.S. dairy groups, who campaigned for administration action, applauded the formation of the dispute panel. “Today’s action is a critical step toward maximizing current export opportunities while sending a strong message in defense against the erection of future barriers in Canada and other markets as well,” said Krysta Harden, chief executive of the U.S. Dairy Export Council.
If the dispute panel finds Canada at fault, it would be given an opportunity to revise its TRQ system with the risk of retaliatory U.S. tariffs if it fails to act.
To read the U.S. request for a dispute panel, click here.