US files formal trade complaint against Canada over dairy

The United States on Wednesday filed a second formal trade complaint against Canada over Ottawa’s dairy import policies, which Washington says harms American producers.

Washington has requested dispute settlement consultations under the US-Mexico-Canada Agreement, saying the changes to the dairy quota system which Ottawa announced last week do not resolve the long-standing complaints and violate the trade agreement.

The policy continues to “prevent US workers, producers, farmers, and exporters from getting the full benefit of the market access that Canada committed to under the USMCA,” US Trade Representative Katherine Tai said in a statement.

Canada’s policies limit a large share of American dairy exports — including milk, butter, yogurt and ice cream — to Canadian processors under a system known as tariff rate quotas (TRQs), which US officials say restrict market access for US producers.

“I am deeply troubled by Canada’s decision to expand its dairy tariff-rate quota restrictions,” Tai said.

A TRQ applies a preferential tariff to a set volume or quota of product, and a higher duty for amounts above that level. Canada was permitted to use the system for 14 dairy product lines under USMCA — known in Canada as CUSMA — which came into force July 1, 2020, replacing the 1994 North American Free Trade Agreement.

Washington filed a first complaint in December 2020 and said it prevailed in the panel ruling released in late December 2021.

However, Ottawa says the changes announced last week fulfill the panel’s findings.

“Canada has met its obligations under CUSMA to ensure our TRQ system is compliant,” Canada’s trade minister Mary Ng said in a statement.

She said her government “will actively participate in CUSMA’s consultation process and standby our position to administer our TRQs in a manner that supports our dairy supply management system.”

If the disagreement cannot be resolved through consultations, Washington can request another dispute settlement panel to arbitrate, and potentially authorize the United States to retaliate if Canada fails to comply.

American dairy groups have called for the administration to impose punitive tariffs on Canadian goods, saying it is required by the USMCA trade pact.

US Agriculture Secretary Tom Vilsack said Canada’s “protectionist dairy policies are a top concern.” 

“Canada has failed to honor and implement its USMCA commitments by removing the trade restrictions that disadvantage and deter US dairy producers and exporters from enjoying real and meaningful access to the Canadian market,” he said in the statement.