A recent USMCA ruling seems to have put an end to the long-running dispute between the U.S. and Canada over tariffs on dairy imports.
The USMCA dispute panel determined that Canada had not acted unreasonably, and under the U.S.-Mexico-Canada Agreement, Canada has the right to maintain tariff rate quotas (TRQs) on the following 14 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, and other dairy.
Furthermore, this closes the door on the U.S. issuing retaliatory tariffs on Canada, which is something that had been discussed as a possibility in prior discussions about the issue.
The announcement follows the United States’ request for a dispute settlement panel on January 31, 2023.
The United States has been expressing concerns about Canada’s dairy TRQ allocation measures since prior to entry into force of the USMCA. In December 2021, a USMCA dispute settlement panel found Canada’s dairy TRQ allocation measures to be inconsistent with Canada’s USMCA obligations. In response to the adverse findings of the panel, Canada introduced changes to its TRQ allocation measures, but the United States considered that Canada’s revised policies were still inconsistent with Canada’s obligations under the USMCA.
In May 2022, the United States requested consultations with Canada to address its updated dairy TRQ allocation measures. Following those consultations, Canada ceased its USMCA-inconsistent partial allocation of calendar year 2022 dairy TRQs, which the United States had raised in the May 2022 consultations request.
In December 2022, the United States again requested consultations with Canada after identifying additional areas of concern with Canada’s dairy TRQ policies. The United States established a panel in January 2023. After receiving written submissions and meeting with the disputing parties, the USMCA panel issued its final report on November 10, 2023.
In the report, the panel found that Canada’s measures are not inconsistent with the USMCA provisions cited by the United States. The panel split on the U.S. claims that Canada’s exclusion of retailers, food service operators, and other entities from eligibility and its historical market share approach to allocate Canada’s USMCA dairy TRQs breach Canada’s USMCA obligations. A dissenting panelist agreed with the United States that by excluding retailers and others, Canada was breaching its commitment to make its dairy TRQs available to all applicants active in the Canadian food or agriculture sector.
There is no appeal process for dispute settlements under USMCA.
U.S. Trade Ambassador Katherine Tai said she was “very disappointed” by the panel’s findings, adding that the U.S. would “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.”
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