Retaliatory measures against imports from Canada are one possibility after the U.S. rejected a Canadian effort to adjust its dairy tariff-rate quotas following a decision by a U.S.-Mexico-Canada Agreement dispute settlement panel.
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. While Canada’s trade ministry acknowledged this finding it also pointed out that the panel expressly recognized “the legitimacy of Canada’s supply management system” and confirmed that Canada has the discretion to manage its TRQ allocation policies under the USMCA in a manner that supports that system.
On May 16 Canadian trade minister Mary Ng announced new dairy TRQ policies that “end the use of processor-specific TRQ pools” in compliance with the USMCA panel decision. However, U.S. officials responded that they were “disappointed” with the nature of the changes, which Agriculture Secretary Tom Vilsack said would not include retailers as eligible to participate in the TRQs.
U.S. Trade Representative Katherine Tai said the U.S. will “evaluate all options … as we determine our next steps in the coming days.” One possibility is a suspension of USMCA concessions in the dairy or possibly other sectors, which could mean imposing retaliatory tariffs on imports from Canada. U.S. dairy groups are already pressuring the Biden administration to do that, and Vilsack indicated that it is under active consideration. However, the amount of any such tariffs or which products might be targeted remain unclear at present.
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