A recent loss in a long-running dispute over Canada’s dairy tariff-rate quota policies means the threat of U.S. retaliatory tariffs against imports from Canada appears to be off the table.
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.
A second USMCA dispute panel was established to consider these charges, but the Office of the U.S. Trade Representative stated that in a recent report two of the three panelists found that Canada’s measures do not breach any of the USMCA commitments the U.S. cited. One panelist did agree with a U.S. claim challenging Canada’s narrow definition of eligible applicants, USTR added, which excludes a substantial number of Canadian importers.
Because the panel ruled against the U.S. and its report is final, Washington will not be authorized to suspend USMCA concessions against Canada in the dairy or possibly other sectors, which could have included imposing retaliatory tariffs on imports. However, USTR Katherine Tai said the U.S. “will continue to work to address this issue with Canada” and “will not hesitate to use all available tools to enforce our trade agreements.” Agriculture Secretary Tom Vilsack added that the U.S. “will continue exploring all avenues available” to secure “the market access we believe Canada committed to under the USMCA.”
Copyright © 2025 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.