U.S. Initiates Trade Dispute Against Canadian Dairy Industry

The Biden administration initiated a dispute process against the Canadian dairy industry, triggering the formal dispute mechanism of the new U.S.-Mexico-Canada Agreement for the first time.

The U.S. dairy industry has long complained about policies in Canada that prevent sales in their market, and the issue has won the support of many members of Congress who represent the major dairy-producing states. Canada’s dairy protection was one of the key sticking points of the negotiations over the USMCA which was agreed to in 2018, and the U.S. dispute amounts to a formal accusation that Canada isn’t living up to the terms of the agreement.

“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,” said Katherine Tai, the U.S. trade representative and President Biden’s top trade adviser, on Tuesday.
 
The U.S. alleges that Canada has used a complex system of tariff-rate quotas that sets aside a share of the dairy market exclusively for Canadian dairy processors, and that the system is in violation of what Canada agreed to in 2018.

The complaint predates the Biden administration—in December of 2020, the Trump administration filed the initial complaint, and the U.S. and Canada discussed the complaint in December, but failed to resolve the issue.

The U.S. is now escalating the dispute by requesting the creation of a formal dispute settlement panel. The panel would hold hearings to understand the issue and release a The U.S. is now escalating the dispute by requesting the creation of a formal dispute settlement panel. The panel would hold hearings to understand the issue and release a report later this year. If the U.S. prevails, Canada would then have to bring its practices into compliance. If they didn’t, the U.S. would eventually be able to impose tariffs.

“Canada is disappointed that the United States has requested a dispute settlement panel,” said Canada’s trade minister Mary Ng.

“We are confident that our policies are in full compliance,” with the trade agreement, she said. “We will vigorously defend our position during the dispute settlement process.”

The move is part of a series of steps the Biden administration has taken to enforce the USMCA. Earlier this month, the U.S. initiated a review of a union vote at a General Motors Co. truck factory in Mexico, a separate type of enforcement action. Also this month, U.S. and Mexican labor groups filed a complaint against a Mexican auto-parts manufacturer.

“These enforcement actions reflect the Biden-Harris administration’s deep commitment to enforcing the USMCA and to ensuring that U.S. trade policy works for America’s workers,” the office of the USTR said.

According to the International Trade Commission, the USMCA—if implemented as negotiated—would boost U.S. dairy exports by more than $314 million a year.

Canada’s dairy producers have long fought against opening the market. The country has around 11,000 commercial farms that hold substantial political sway because they are located in a politically important region: rural central Canada, especially French-speaking Quebec.

Source: WSJ