Last week a decision was released in a dispute between the US and Canada related to Canada’s dairy tariff-rate quotas (TRQ) under the United States-Mexico-Canada Agreement (USMCA). The dispute settlement panel found that certain Canadian restrictions on use of the TRQs are in violations of its obligations under the free trade agreement. Specifically, the Panel found that Canada has breached its USMCA Article 3.A.2.11(b) commitments by “reserving TRQ pools exclusively for the use of processors.”

The U.S. Trade Representative, Katherine Tai, lauded the victory in the in the first dispute settlement panel proceeding ever brought under USMCA. “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 Canadian government has also claimed victory in the decision. The trade and agriculture ministries released a statement saying Canada has “taken note of the Panel’s finding regarding Canada’s practice of reserving TRQ pools for the use of dairy processors,” and “takes its commitments and obligations under international agreements seriously.” Canada specifically found the Panel’s statements regarding “the legitimacy of Canada’s supply-management system,” and Canada’s “the discretion to manage its TRQ allocation policies,” that supports Canada’s supply-management system as key to its actions.

Canada has 45 days from when the Panel issued its final report – which was on December 20, 2021 – to comply with the Panel’s findings. Should Canada not comply with the Panel’s decision under the rule of USMCA, the U.S. could retaliate by imposing tariffs on Canadian goods.

We will continue to monitor developments in this dispute and monitor whether the U.S. targets any dairy products in possible retaliation. 

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