First USMCA trade panel rules against Canada's dairy quota practices
In a December 2021 final report, a USMCA dispute panel found that Canada broke the agreement by reserving most of its dairy import quotas for processors.
On Dec. 20, 2021, a dispute settlement panel under the United States-Mexico-Canada Agreement issued its final report in the first state-to-state case brought under the trade pact. It found that Canada's handling of its dairy import quotas did not meet its USMCA commitments.
What the case was about
Under USMCA, Canada keeps 14 tariff-rate quotas, or TRQs, on dairy products such as milk, cream, butter, cheese, yogurt and ice cream. A TRQ lets a set volume of imports enter at a low or zero tariff, while imports above that amount pay a higher rate.
Canada had been reserving 85% to 100% of the volume in each of those quotas for processors and so-called further processors. Other eligible applicants, such as distributors, food service companies and retailers, could apply only for what was left.
The U.S. argued that this shut many potential buyers of American dairy products out of the quotas. The U.S. requested the panel on May 25, 2021, and it was established that same day under USMCA rules. The three panelists met in person on Oct. 25-27, 2021, and gave an initial report to the parties on Nov. 24.
The ruling
The panel found that Canada's practice of reserving quota pools only for processors was inconsistent with Article 3.A.2.11(b) of the agreement, which bars limiting access to an allocation to processors. The U.S. Trade Representative noted that the panel saw no distinction between initial processors and further processors for this purpose.
The panel made no findings on several other U.S. arguments, saying it did not need to decide them. It also said one claim, about whether Canada's system allowed shipments in commercially viable quantities, was outside its terms of reference.
The report was made public on Jan. 4, 2022. USTR said Canada had 45 days from the date of the final report to comply. U.S. dairy exports to Canada totaled $478 million from January through October 2021, according to USTR, making Canada the third-largest destination for U.S. dairy products.
What it meant for carriers
The case was a test of USMCA's dispute system, which replaced NAFTA's and had not been used for a full panel before. A working enforcement process gives exporters more confidence to invest in cross-border trade.
For refrigerated carriers on northbound lanes, wider access to Canada's dairy quotas could mean more U.S. dairy loads headed across the border over time, depending on how Canada changed its rules.