U.S. launches second USMCA dispute panel in dairy battle with Canada

The United States on Tuesday doubled down on its ongoing row with Canada over dairy imports, accusing one of its closest trading partners of shirking its responsibilities under the three-year-old trade deal with North America.

It’s the second time in less than two years that the US has set up a so-called dispute settlement body to deal with the way Ottawa allocates its allocation of milk tariff quotas, or TRQs – the quantities of certain dairy products sold at lower prices after Canada can be introduced compulsory levels.

That first panel, launched in May 2021, broadly agreed with the US complaint that Canada is allocating too much of its quota allocation to processors instead of growers – a strategy American growers saw as an affront to their ability to sell their produce in the US North to export border.

A new body, set up under the dispute settlement rules of the US-Mexico-Canada agreement, is necessary because Canada failed to adequately respond to the first, US Trade Representative Katherine Tai said.

“The Canadian government’s revised measures have not resolved the issue,” Tai said in a statement.

“With this panel motion, we are using our available tools to enforce our trade agreements and ensure U.S. workers, farmers, processors and exporters receive the full benefits of the USMCA.”

She added, “Canada has made commitments to the United States in the USMCA, and the Biden-Harris administration is ensuring they honor those commitments.”

International Trade Secretary Mary Ng, who in December 2021 called the original panel’s decision a victory for Canada’s controversial milk supply management system, responded to the news with a defiant remark on Tuesday.

“We know how important stability and security is to our farmers, workers and businesses, and we will always work to ensure trade rules are implemented as intended,” Ng said.

“Canada will continue to defend our supply management system and the market access agreed with the US.

Disputes and disagreements have become a defining feature of the USMCA, often referred to as CUSMA in Canada, since it became the country’s law in the summer of 2020.

Canada and the US are jointly holding Mexico accountable over energy policies they say unfairly favor domestic suppliers and threaten to undermine American efforts to boost the green energy industry and fight climate change.

And Canada and Mexico won a significant victory together earlier this month when a separate panel ruled against the US interpretation of the rules that determine whether core automotive parts are considered domestic or foreign origin.

The US is silent on whether it intends to comply with that decision — and that could be part of the decision to pressure Canada over dairy, said Dan Ujczo, an attorney at Thompson Hine in Columbus, Ohio, who specializes in North American trade is law.

Ujczo likened the current state of the USMCA to a popular social media meme depicting a 1960s Spider-Man and several doppelgangers in a circle, all pointing fingers at each other.

“It’s like a circular firing squad — that’s the USMCA disputes right now,” Ujczo said Tuesday at a seminar on how the U.S. and around the world trade landscape is likely to evolve in 2023.

“All of this is linked: ‘If you don’t import dairy, we won’t import cars.’ So it’s a lever.”

Both the National Milk Producers Federation and the US Dairy Export Council welcomed Tai’s decision.

Canadian quota practices directly harm U.S. farmers, processors and others in the industry “by unfairly restricting access to their market,” said Jim Mulhern, the association’s president and CEO.

“Canada has shown that it is not meeting milk commitments made in trade agreements,” added Krysta Harden, head of the Export Council. “As long as they continue to hesitate, we will continue to work with the USTR and USDA to fight back and propose retaliation if necessary.”