The U.S. is once again pushing forward an effort that could ultimately result in retaliatory tariffs against imports from Canada in a long-running dispute over Ottawa’s dairy tariff-rate quota policies.

Under the U.S.-Mexico-Canada Agreement, Canada has the right to maintain TRQs on the following dairy products: milk, cream, skim milk powder, butter and cream powder, industrial cheeses, cheeses of all types, milk powders, concentrated or condensed milk, yogurt and buttermilk, powdered buttermilk, whey powder, products consisting of natural milk constituents, ice cream and ice cream mixes, and other dairy. A TRQ applies a preferential rate of duty to an in-quota quantity of imports and a higher rate to imports above that quantity. 

In January 2022 a USMCA panel agreed that Canada’s allocation of its dairy TRQs – specifically, setting aside 80-85 percent of each dairy TRQ exclusively for Canadian processors – is inconsistent with Canada’s commitment under the USMCA not to limit access to an allocation to processors. Canada claimed compliance with this ruling in May 2022 after introducing changes to its TRQ allocation measures, but the U.S. said the new policies were still inconsistent with USMCA rules and requested another round of talks.

The U.S. subsequently expanded the scope of those discussions to include Canada’s use of a market-share approach for determining TRQ allocations. The U.S. argued that Canada applies different criteria for calculating the market share of different segments of applicants and is imposing new conditions that effectively prohibit retailers, food service operators, and other types of importers from utilizing TRQ allocations.

After talks held Jan. 17 failed to resolve the matter, a second USMCA dispute panel was established upon the U.S’ request Jan. 31. The panel’s report is expected within nine months.

If the panel rules in favor of the U.S., Canada will have a certain period of time to make applicable changes. If that does not happen the U.S. could be authorized to suspend USMCA concessions in the dairy or possibly other sectors, including by imposing retaliatory tariffs on imports from Canada.

However, Canadian officials indicated that they’re not backing down from the fight. “Canada will continue to defend our supply management system and the market access that Canada and the United States have agreed on,” said trade minister Mary Ng, a statement suggesting that the two sides disagree over what they agreed on under the USMCA. Ng said Canada will also “stand firm against attempts to renegotiate agreements during the dispute settlement panel process,” perhaps indicating that the dispute is more likely to result in an enforcement action.

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