The U.S. said recently it is expanding a dispute under the U.S.-Mexico-Canada Agreement over Canada’s dairy tariff-rate quota policies.

Under the USMCA 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 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 Office of the U.S. Trade Representative said recently that the U.S. is now expanding its challenge to include Canada’s use of a market-share approach for determining TRQ allocations. USTR explained that Canada “applies different criteria for calculating the market share of different segments of applicants” and “is failing to allow importers the opportunity to fully utilize TRQ quantities.” The U.S. is also continuing to challenge Canada’s imposition of new conditions on the allocation and use of the TRQs and its prohibition on eligible applicants, including retailers, food service operators, and other types of importers, from accessing TRQ allocations.

USTR states that if the two sides are unable to resolve this matter through consultations the U.S. may request the establishment of a panel under the USMCA. If such a panel were to rule in favor of the U.S., Canada would have a certain period of time to make applicable changes. If that did not happen the U.S. could be authorized to suspend USMCA concessions in the dairy or possibly other sectors, which could mean imposing retaliatory tariffs on imports from Canada.

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