US challenges Canada’s dairy tariff rate quota policies (again)

By | 2023-01-27T03:59:41+00:00 January 27th, 2023|Tariffs|

The US is expanding its challenge to Canada’s dairy tariff rate quota policies under the United States-Mexico-Canada Agreement (USMCA).

Under the USMCA, Canada has the right to maintain 14 tariff rate quotas (TRQs) on the following types of 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
  • other dairy products

A TRQ applies a preferential rate of duty to an in-quota quantity of imports and a higher rate to imports above that quantity.

The US claims that Canada is not allocating its TRQ fairly, giving the bulk of the quota to Canadian dairy producers while their US counterparts aren’t receiving the full level of access that they were promised.

This is the latest development in a long-running dispute between the US and Canada after the US raised concerns to the USMCA over Canada’s dairy TRQ allocation measures.

Timeline of events

June 2020, Oct. 2020 and May 2021 – Canada publishes notices to importers for dairy TRQs that set aside and reserved a percentage of the quota for processors and “further processors.” According to the Office of the United States Trade Representative (USTR), “as a result of this restriction, Canada was 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.”

Jan. 2022 – A USMCA dispute settlement panel concluded that Canada’s dairy TRQ allocation measures to be inconsistent with Canada’s USMCA obligations.

March 2, 2022 – Global Affairs Canada initiated public consultations regarding proposed changes to its policies with respect to the allocation of Canada’s USMCA dairy TRQs and explained that the changes are intended to implement the findings of the USMCA Panel.

May 16, 2022 – Canada introduced changes to its TRQ allocation measures in response to the findings of the USMCA, but the US said that the new policies did not resolve all of the concerns.

May 25, 2022 – The US requested dispute settlement consultations with Canada.  Since initiating those consultations, the United States has identified additional aspects of Canada’s TRQ allocation measures that are inconsistent with Canada’s obligations under the USMCA.

Dec. 2022 – The US requested new settlement consultations with Canada over Canada’s USMCA obligations and expanded its challenge to include Canada’s use of a market-share approach for determining TRQ allocations.

In its latest release, USTR alleges that, “Canada applies different criteria for calculating the market share of different segments of applicants, and Canada is failing to allow importers the opportunity to fully utilize TRQ quantities. The United States continues to challenge Canada’s dairy TRQ allocation measures that impose new conditions on the allocation and use of the TRQs, and that prohibit eligible applicants, including retailers, food service operators, and other types of importers, from accessing TRQ allocations.  Through these measures, Canada undermines the market access that it agreed to provide in the USMCA.”

So what happens next? If the two sides are unable to resolve this matter through consultations the US may request the establishment of a panel under the USMCA. If the panel were to rule in favor of the US, Canada would have a certain period of time to make applicable changes. If that did not happen, the US might go as far as imposing retaliatory tariffs on imports from Canada.

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