Home Industry News Economics USMCA Dispute Panel Again Fails to Defend U.S. Dairy Trade Rights

USMCA Dispute Panel Again Fails to Defend U.S. Dairy Trade Rights

In a surprising setback for U.S. dairy, the U.S.-Mexico-Canada Agreement (USMCA) dispute settlement panel upheld Canada’s manipulative dairy quota administration practices, leaving U.S. dairy exporters struggling to realize the market access granted in the trade agreement. Despite the tireless efforts of the U.S. government team, this ruling reflects a glaring failure to safeguard the most fundamental rights outlined in the USMCA.

In this second dispute initiated by the Office of the U.S. Trade Representative (USTR) under USMCA regarding Canada’s administration of its dairy tariff-rate quotas (TRQs), the United States refined and expanded its 2021 claims that Canada is not meeting its dairy TRQ administration commitments under the agreement. In the first dispute, Canada was challenged by the previous USMCA panel over the minimum percentages of quota the government was allocating to Canadian processors. In response, Canada immediately updated its rules resulting in even higher quantities of quota being allocated directly to Canadian processors. The United States consequently initiated this second dispute under the agreement, arguing that Canada unfairly limits quota access; that quota allocations are calculated in a manner that favors Canadian processors; that requirements are imposed on quota applicants that intentionally disadvantage importers; and that Canada’s reallocation procedures prevent quotas from filling. The panel report on November 24th disagreed with all U.S. claims.

Michael Dykes, D.V.M, president and CEO of the International Dairy Foods Association (IDFA), issued the following statement:

“First and foremost, IDFA commends the hard work of the U.S. government team that worked on this dispute; the outcome of this dispute is not an indication of the government’s efforts in this particular matter. Yet, we are completely stunned and deeply disappointed by this panel’s failure to defend even the most basic rights outlined in USMCA. This outcome sadly confirms what the U.S. dairy community and U.S. negotiators collectively feared from the outset of USMCA negotiations — that Canada’s supply management system is so imbalanced and so far outside a rules-based and free market trading system that no existing set of rules is comprehensive enough to effectively curb its distortive impacts.

“With the outcome of this second USMCA dairy dispute, IDFA joins the growing number of business leaders urging the Biden-Harris Administration to urgently reset its 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.

“IDFA remains committed to a rules-based, free-market trading system that promotes fair competition, transparency, and global cooperation. IDFA will continue to pursue accountability for Canada’s opaque market distortions that seek to substitute imports while cross-subsidizing their own exports and continue to seek enforcement of the rules-based, free-market values to which Canada allegedly committed.”

Krysta Harden, President and CEO of USDEC added, “By allowing Canada to ignore its USMCA obligations, this ruling has unfortunately set a dangerous and damaging precedent. We do however want to express our appreciation for allies in Congress and the Administration for their efforts and commitment to fighting for U.S. dairy. This is unfortunately not the only shortcoming in Canada’s compliance with its international commitments. We are committed to working with USTR and USDA to evaluate efforts to address Canada’s continued harmful actions that depress dairy imports while simultaneously evading USMCA’s dairy export disciplines.”

“It is profoundly disappointing that the dispute settlement panel has ruled in favor of obstruction of trade rather than trade facilitation,” said Jim Mulhern, president and CEO of NMPF. “Despite this independent panel’s adverse ruling, we’d like to thank the Biden Administration and the many members of Congress who supported us for their tireless pursuit of justice for America’s dairy sector. We urge Ambassador Tai and Secretary Vilsack to look at all available options to ensure that Canada stops playing games and respects what was negotiated.”

Despite the United States exporting more than $1 billion in dairy products to Canada in 2022, making it the second largest market for U.S. dairy exports, U.S. dairy exporters were unable to fill any Canadian dairy quotas granted in the USMCA. The average tariff fill rate was only 42% across all 2022/2023 quotas, with 9 of the 14 TRQs falling below half the negotiated value for the same period.

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