(Bloomberg) — The U.S. and Canada both claimed victory in a spat over dairy quotas that saw the first-ever ruling by a dispute-settlement panel under the nations’ trade pact with Mexico.
The arbiters considering the complaint under the U.S.-Mexico-Canada Agreement found that Canada is breaching its USMCA commitments by reserving most of the in-quota quantity in its dairy tariff-rate quotas for the exclusive use of Canadian processors, the U.S. Trade Representative’s office said in a statement Tuesday. President Joe Biden’s administration has said the quotas undermine the ability of American dairy exporters to sell products to consumers north of the border.
Canada has “taken note of the panel’s finding regarding Canada’s practice of reserving TRQ pools for the use of dairy processors,” and “takes its commitments and obligations under international agreements seriously,” the trade and agriculture ministries said in a statement.
Read more: U.S. Seeks Trade-Pact Dispute Panel to Probe Canada Dairy Quotas
They noted that panel “expressly recognizes the legitimacy of Canada’s supply-management system,” and confirmed that the country “has the discretion to manage its TRQ allocation policies under CUSMA in a manner that supports Canada’s supply-management system,” using the Canadian acronym for the pact.
The panel decision was delivered to the parties as a final report on Dec. 20, USTR said. Canada now has about one month from now — 45 days from when that final report was issued — to comply with the panel’s ruling, a U.S. official said.
The U.S. in May had challenged Canada’s tariff-rate quotas, or TRQs, which apply a preferential duty rate to a certain quantity of imports and a different rate to imports above that quantity. Specifically, the U.S. questioned the set-aside of a percentage of each dairy quota exclusively for Canadian processors.
The U.S. exported $478 million of dairy products from January through October, though USTR officials wouldn’t provide an estimate of the size of the economic impact from Canada’s restrictions. Should Canada fail to change its policy, under the rules of the USMCA the U.S. could retaliate by imposing tariffs on Canadian products, the officials said.
The U.S. dairy industry has long pushed for greater accountability from Canada, part of the impetus for including dairy policy in the USMCA pact that replaced the North American Free Trade Agreement in July 2020. Under the USMCA, Canada has the right to maintain 14 TRQs on dairy products including milk, cream, and yogurt.
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