Background

The U.S. will not yet impose retaliatory tariffs or similar measures in a dispute over Canada’s dairy tariff-rate quota policies, opting instead for more discussions.

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 May 16.

However, the U.S. has rejected that claim and is now requesting another round of dispute settlement consultations under the USMCA. A press release from the Office of the U.S. Trade Representative asserts that Canada is denying TRQ allocation access to eligible applicants, including retailers, food service operators, and other types of importers, and imposing new conditions on the allocation and use of the TRQs. The U.S. is also challenging Canada’s allocation of only part of its dairy TRQs for 2022 despite USMCA requirements that it fully allocate the TRQs at the beginning of the year.

USTR said that if consultations are unsuccessful the U.S. may request the establishment of another USMCA panel. If such a panel ruled 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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