Feds vow to fight U.S. dairy challenge

The request marks an escalation of a U.S. complaint first lodged in December 2020, alleging that Canada was improperly allocating some of the USMCA's tariff-rate quotas on 14 dairy products, diverting a portion of them to Canadian processors and to the detriment of U.S. dairy farmers and processors. | Getty Images

The United States is targeting Canada’s dairy industry for its first use of well-rested enforcement muscles contained in the United States-Mexico-Canada Agreement.

It has called for a binational trade panel to rule on Canada’s application of import quotas for U.S. dairy products, saying Canada’s current approach undermines fair U.S. access to Canada’s market.

“These measures deny the ability of U.S. dairy farmers, workers and exporters to utilize the (import quotas) and realize the full benefit of the (USMCA,)” said Katherine Tai, the U.S. trade representative (USTR), as she launched the official request for a panel.

“Launching the first panel request under the agreement will ensure our dairy industry and its workers can seize new opportunities under the (USMCA) to market and sell U.S. products to Canadian consumers.”

In the trade deal, which revamped the North American Free Trade Agreement, Canada pledged to set aside a share of Canada’s domestic market for U.S. dairy products.

However, the U.S. claims that Canada is dividing up the quota into slices, some of which can only be accessed by Canadian processors.

Tai and U.S. dairy interests say this is blocking U.S. dairy producers from the free access they were promised.

“On behalf of America’s dairy farmers, we thank ambassador Katherine Tai for initiating the (USMCA) dispute settlement process by requesting the formation of a panel to examine Canada’s failure to provide access to its dairy (quotas,)” said Jim Mulhern, president of the U.S. National Milk Producers Federation.

“Canada has failed to take the action required to comply with its obligations under (USMCA) by inappropriately restricting access to its market.”

Mary Ng, Canada’s international trade minister, denied the U.S. claims.

“We are confident that our policies are in full compliance with our (USMCA quota) obligations and we will vigorously defend our position during the dispute settlement process,” said Ng on May 25.

“Our government will continue to stand up for Canada’s dairy industry, farmers and workers and will continue to preserve, protect and defend our supply management system.”

The dispute comes as no surprise to most dairy interests on both sides of the border, nor to trade experts. Canada’s supply management system has long been a sore spot in Canadian-U.S. trade relations.

The panel system was overhauled in the USMCA deal. The dairy complaint is the first application of the new system by the U.S., so many eyes are watching.

The U.S. has also launched a USMCA complaint against Mexican labour practices at a Mexican auto plant, saying they undermine U.S. workers by leaving Mexican workers vulnerable to exploitation and low wages.

The U.S. has also made a trade complaint against Mexico for its environmental protection regulations.

Canada’s softwood lumber dispute with the U.S. has also recently intensified, with the U.S. cranking up import duties on Canadian lumber in response to what its officials claim were too-low stumpage fees in 2019.

Trade experts are watching to see how the dairy complaint panel functions. The two sides are required to quickly name their nation’s representatives, but a ruling isn’t expected until near the end of 2021.

Trade disputes between the U.S. and Canada are nothing new, especially about agriculture and particularly dairy supply management. The difference with this dispute is the U.S. willingness to employ a trade panel again following years under the past Trump administration, which was not receptive.

During negotiations to replace NAFTA, the Trump administration wanted panels eliminated or weakened, but in the end they were preserved and strengthened.

The continuing political influence of the U.S. dairy industry can be seen in the politics leading up to the current complaint.

A bipartisan group of eight congressional representatives issued a demand for action shortly before the USTR announced its call for a panel.

While Canada’s dairy industry has been quiet about the current complaint, the government has vowed to protect supply management. As the complaint came down, Prime Minister Justin Trudeau swore to protect Canada’s industries that are facing U.S. actions.

“We will always defend supply management and our dairy producers, amongst others,” said Trudeau.

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