Dispute Settlement Panel found that Canada is breaching its commitments made under the US-Mexico-Canada Agreement
The first ever Dispute Settlement Panel formed under the U.S.-Mexico-Canada Agreement (USMCA) ruled in favor of the U.S. in its first ruling, in a dispute about Canadian dairy tariff rate quotas (TRQs).
The panel agreed with the U.S. that Canada is breaching its USMCA commitments by reserving most of the in-quota quantity in its dairy TRQs for the exclusive use of Canadian processors.
“This ruling is a big step for the U.S. dairy sector towards realizing the full benefits of the USMCA and securing real access to the Canadian market for additional high-quality American dairy products such as milk, cheese and skim milk powder,” said U.S. Agriculture Secretary Tom Vilsack in a statement. “Today’s action reflects the Biden-Harris Administration’s deep commitment to enforcing the USMCA and to ensuring that trade rules work for American farmers, ranchers and producers. It also signals to our trading partners that that the United States will stand firm against unjustified trade restrictions and continue fighting on behalf of our farmers and workers to ensure that we have full and fair access to foreign markets.”
The United States requested that a panel be established on May 25, 2021, under Chapter 31 of the USMCA. The panel issued its final report to the Parties on December 20, 2021. Under USMCA rules, Canada has 45 days from the date of the final report to comply with the Panel’s findings. From January through October 2021, the United States exported US$478 million of dairy products to Canada, which is the third largest export destination for U.S. dairy products.
“This historic win will help eliminate unjustified trade restrictions on American dairy products, and will ensure that the U.S. dairy industry and its workers get the full benefit of the USMCA to market and sell U.S. products to Canadian consumers,” said Ambassador Katherine Tai in a statement.
According to the U.S. Trade Representative’s office, a tariff-rate quota applies a preferential rate of duty to an “in-quota” quantity of imports and a different rate to imports above that in-quota quantity. In notices to importers that Canada published in June and October 2020 and May 2021 for dairy TRQs, Canada set aside and reserved a percentage of the quota for processors and for further processors, contrary to Canada’s USMCA commitments. As a result of this restriction, Canada has been undermining the value of its dairy TRQs for U.S. farmers and exporters since entry into force of the USMCA by limiting access to in-quota quantities negotiated under the agreement.