U.S. challenging Canada’s dairy tariff-rate quotas under new trade deal

The United States is formally accusing Canada of unfairly limiting the ability of American dairy producers to sell their products north of the border.

The U.S. has made an official request for consultations to address Canada’s limits on a variety of dairy products — an initial step in the first enforcement action under the U.S.-Mexico-Canada Agreement (USMCA) since the deal took effect in July.

The limits in question are in Canada’s so-called tariff-rate quotas — the quantities of certain goods that can be imported under preferential duties. The U.S. is accusing Canada of assigning too much of its quotas to processors, denying American producers the level of access to which they’re entitled.

“Canada’s measures violate its commitments and harm U.S. dairy farmers and producers,” trade ambassador Robert Lighthizer said in a statement.

The U.S. is “disappointed” to be embarking on the first dispute under USMCA, which is supposed to provide American producers “fairer access to Canada’s highly protected dairy market,” the statement said.

U.S. Trade Representative Robert Lighthizer says Canada’s measures are harming U.S. dairy producers. (Anna Moneymaker/Pool via Reuters)

“This action demonstrates that the United States will not hesitate to use all tools available to guarantee American workers, farmers, ranchers, and businesses enjoy the benefits we bargained for.”

The next step, presuming the consultation process doesn’t produce a resolution, would be to set up a dispute resolution panel under the terms of the agreement.

Wednesday’s action comes as little surprise; the U.S. Dairy Export Council set the table in June when it complained that Canada’s tariff-rate quotas (TRQs) deny American farmers rightful access to markets north of the border.

The federal government rejects that claim, insisting that the quotas are well within the bounds of the agreement.

The council said Canada’s distribution of the quotas discourages the importing of certain high-value products, instead providing market access to competitors that have little incentive to take advantage.

“Canada’s actions place the U.S. dairy industry at a disadvantage by discouraging utilization of the full use of the TRQs and limiting the market access granted by USMCA,” council president Tom Vilsack complained over the summer.

“We urge the U.S. government to act immediately to ensure that these provisions are implemented in good faith.”

It’s also a safe bet that the dispute won’t disappear once Donald Trump leaves the White House: Vilsack is reportedly poised to be president-elect Joe Biden’s nominee to lead the U.S. Department of Agriculture.

Dairy was one of the most politically sensitive, hotly contested aspects of the 2017-18 Canada-U.S. trade negotiations. 

Canada agreed to allow 3.59 per cent more market access for U.S. dairy products, and also to limit exports to the U.S. of dairy products that American officials view as unfairly subsidized.

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