Canada Stands by Its Dairy Quotas as US Files Second Trade Complaint

Dairy cattle feed at Nicomekl Farms, in Surrey, B.C., on Oct. 20, 2020. (The Canadian Press/Darryl Dyck)

Canada’s international trade minister says the country stands by its position on imposing trade quotas on dairy products after the United States filed a second formal complaint against the policy under the new North American trade agreement.

The dispute is centred on Canada’s tariff-rate quotas (TRQs)—the quantities of certain goods that can be imported under preferential duties. The United States has accused Canada of assigning too much of its quotas to processors and thus denying American producers the level of access to which they’re entitled under the Canada-United States-Mexico Agreement (CUSMA).

In response to U.S. Trade Representative Katherine Tai’s announcement on May 25 that it is, for the second time, filing a formal dispute settlement request against Canada’s TRQs, Canadian Trade Minister Mary Ng said it respects the U.S.’s rights to do so but will stand its ground on dairy quota practices.

“Canada has met its obligations under CUSMA to ensure that our TRQ system is compliant,” Ng said in a May 25 statement. “We respect the right of the United States to initiate the dispute resolution mechanism as part of the agreement.”

“Canada will actively participate in CUSMA’s consultation process and stand by our position to administer our TRQs in a manner that supports our dairy supply management system.”

The U.S.’s new challenge came as part of its years-long dispute against Canada’s trade restriction measures intended to protect its dairy farmers from American imports—policies which the U.S. trade representative said are contrary to the commitments under CUSMA.

In her statement, Tai said Canada’s dairy TRQs policies “deny allocation access to eligible applicants, including retailers, food service operators, and other types of importers.” She also challenged Canada’s failure to fully allocate its annual dairy TRQs, saying it is “parceling out a few months’ quota at a time.”

Tai said she is “deeply troubled” by Canada’s decision to expand the TRQ restrictions, which she said are undermining the market access Canada has agreed to provide under the CUSMA through these measures.

“We communicated clearly to Canada that its new policies are not consistent with the USMCA and prevent U.S. workers, producers, farmers, and exporters from getting the full benefit of the market access that Canada committed to under the USMCA,” she said.

U.S. Secretary of Agriculture Tom Vilsack described Canada’s dairy tariffs as “a top concern” for U.S. President Joe Biden’s administration.

The United States previously filed a formal trade complaint against Canadian dairy policy in December 2020 under CUSMA, which replaced the North American Free Trade Agreement (NAFTA) that year.

An international arbitral panel, established under the CUSMA agreement, sided with the United States in a key ruling that year, saying that Canada’s practices are “inconsistent” with the commitments spelled out in the trade deal. The panel issued a final report in January 2022, forcing Canada to modify its measures.

On May 16, Canada published the final changes to its dairy TRQ allocation rules, but it was rejected by the United States as the basis for resolving the dispute between the two countries, saying the new rules will only produce similar results as the old ones.

According to the Financial Post, the United States had accused Canada of reserving most TRQs for its domestic processors—including three major dairy companies Saputo Inc., Agropur, and Groupe Lactaliswhich—which are in control of most of the market, and therefore impedes American companies from full and fair competition.

This issue remains in Canada’s new TRQs rule, the U.S. trade representative office said.

“Canada’s revised policies provide that only processors, further processors, and distributors will be able to apply for and be granted an allocation. This means that Canada continues to exclude other eligible applicants, such as retailers and food service operators,” reads its May 25 statements.

The statement also said Canada’s dairy TRQs require applicants to be active during all 12 months of a 12-month reference period, which will potentially exclude some applicants who are otherwise eligible, particularly new entrants.