WASHINGTON — United States Trade Representative Katherine Tai announced Jan. 4 that the United States has prevailed in the first dispute settlement panel proceeding ever brought under the United States-Mexico-Canada Agreement (USMCA). A USMCA panel agreed with the United States that Canada is breaching its USMCA commitments by reserving most of the in-quota quantity in its dairy tariff-rate quotas (TRQs) for the exclusive use of Canadian processors.
“Enforcing our trade agreements and making sure they benefit American workers and farmers is a top priority for the Biden-Harris Administration,” said Ambassador Katherine Tai. “That is why this Administration filed the first-ever panel request under the USMCA. This historic win will help eliminate unjustified trade restrictions on American dairy products, and will ensure that the U.S. dairy industry and its workers get the full benefit of the USMCA to market and sell U.S. products to Canadian consumers.”
The United States requested that a panel be established on May 25, 2021 under Chapter 31 of the USMCA. The panel issued its final report to the Parties on December 20, 2021. Under USMCA rules, Canada has 45 days from the date of the final report to comply with the Panel’s findings. From January through October 2021, the United States exported $478 million of dairy products to Canada, which is the third-largest export destination for U.S. dairy products.
This panel report marks another successful result in a recent series of enforcement actions the United States has taken under the USMCA. In 2021, the United States made the first two requests ever under the USMCA Facility-Specific Rapid Response Labor Mechanism – both of which resulted in outcomes that today are producing important, concrete results for workers.
A tariff-rate quota applies a preferential rate of duty to an “in-quota” quantity of imports and a different rate to imports above that in-quota quantity. Under the USMCA, Canada has the right to maintain 14 TRQs on the following 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.
In notices to importers that Canada published in June and October 2020 and May 2021 for dairy TRQs, Canada set aside and reserved a percentage of the quota for processors and for so-called “further processors,” contrary to Canada’s USMCA commitments. As a result of this restriction, Canada has been 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.
USTR officials worked closely with staff from the U.S. Department of Agriculture throughout the case. A USMCA panel agreed with the United States that Canada’s allocation of dairy TRQs, specifically the set-aside of a percentage of each dairy TRQ exclusively for Canadian processors, is inconsistent with Canada’s commitment in Article 3.A.2.11(b) of the USMCA not to “limit access to an allocation to processors.” The Panel additionally found that the Agreement makes no distinction between initial processors and “further processors”, and that therefore, the restriction in Article 3.A.2.11(b) applies to all processors, including specific subsets.
A copy of the panel report is available here.