US Loses Second USMCA Panel on Dairy TRQ Dispute

A USMCA dispute settlement panel ruled in Canada’s favor in a much-awaited second decision on Canada’s dairy tariff rate quotas, according to a report released by the panel on Nov. 24.

The panel upheld the TRQ allocation mechanisms adopted in May 2022 after an initial USMCA ruling against Canadian rules that reserved quota for dairy processors (see 2201040041). The U.S. had argued that the new allocation method also violated USMCA rules by excluding retailers and food service operators.

“In sum, the United States’ position appears to be that the Agreement obligates Canada to allocate its TRQs to the eligible applicants that the United States has selected,” the panel report said. “The ordinary meaning of the text does not support such an interpretation.”

U.S. Trade Representative Katherine Tai said in an emailed news release that she’s “disappointed” with the panel decision. She went on: “Despite the conclusions of this report, the United States continues to have serious concerns about how Canada is implementing the dairy market access commitments it made in the Agreement.

“While the United States won a previous USMCA dispute on Canada’s dairy TRQ allocation measures, Canada’s revised policies have still not fixed the problem for U.S. dairy farmers. We will continue to work to address this issue with Canada, and we will not hesitate to use all available tools to enforce our trade agreements and ensure that U.S. workers, farmers, manufacturers, and exporters receive the full benefits of the USMCA.”

In the news release, USTR noted that while two of the three USMCA panelists in the case found in Canada’s favor, a third panelist dissented, agreeing “with a principal U.S. claim challenging Canada’s narrow definition of eligible applicants, which excludes a substantial number of importers that would be eager to bring higher-value, retail-ready U.S. dairy products to Canadian consumers.”

The U.S.-based International Dairy Foods Association issued a lengthy statement that criticized the panel decision. IDFA President and CEO Michael Dykes said the trade group is “completely stunned and deeply disappointed by this panel’s failure to defend even the most basic rights outlined in USMCA.”

The IDFA called for a “reset” of the Biden administration’s trade policy agenda. “Against the backdrop of escalating global conflicts and food insecurity, it is imperative that the United States advance new negotiations that dismantle distortions undermining rules-based trade. It is time to re-establish the United States as a global leader in negotiating preferential trade agreements with unwavering commitments,” Dykes said.

Canadian trade and agriculture ministers Mary Ng and Lawrence MacAulay, respectively, said in a joint statement that Canada is “very pleased with the dispute settlement panel’s findings, with all outcomes clearly in favour of Canada. This is good news for Canada's dairy industry and our system of supply management.”

“Canada looks forward to working with the United States and Mexico to ensure that our industries and workers continue to enjoy the benefits of CUSMA,” the joint statement said, using Canada's moniker for USMCA.

The Canada-based Dairy Processors Association of Canada said in a Nov. 24 statement that the “decision will help provide the dairy sector with greater certainty and stability going forward.”