The Office of the U.S. Trade Representative has escalated its first-ever enforcement action under the U.S.-Mexico-Canada Agreement, which challenges Canada’s practice of setting aside and reserving a percentage of each of its dairy tariff-rate quotas exclusively for Canadian processors. Bilateral consultations were unable to resolve the matter so the U.S. has now requested the establishment of a dispute settlement panel.

USTR has said that one of the key improvements of the USMCA over NAFTA was “fairer access to Canada’s highly-protected dairy market.” Under this agreement Canada has the right to maintain 14 TRQs on dairy products, including 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.

However, in notices to importers published in June and October 2020 and May 2021, Canada set aside and reserved a percentage of these TRQs for domestic processors and so-called further processors. USTR asserts that these restrictions are contrary to Canada’s USMCA commitments and limit the access of U.S. producers and exporters to the in-quota quantities negotiated under the USMCA. Canadian trade minister Mary Ng has responded that Ottawa is entitled to defend its supply management system and dairy industry under the USMCA and is “confident that our policies are in full compliance with our [USMCA] obligations.”

A panel to hear the case is expected to be formed in the next 30 days and will then have another 120 days to render a decision. If the panel rules against Canada the U.S. will likely win authorization to impose retaliatory measures, which could include higher tariffs on imports of Canadian goods.

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