U.S. launches second salvo in dairy battle with Canada

The United States doubled down Tuesday in its ongoing dispute with Canada over dairy imports, accusing one of its closest trading partners of shirking its responsibilities under the terms of North America's three-year-old trade agreement.

It's the second time in less than two years that the U.S. has established what's known as a dispute settlement panel to address the way Ottawa distributes its allotment of dairy tariff rate quotas, or TRQs — the quantities of certain dairy products that can enter Canada at lower duty levels.

That first panel, launched in May 2021, largely agreed with the U.S. complaint that Canada was allocating too much of its quota allotment to processors instead of producers — a strategy that American producers saw as an affront to their ability to export their products north of the border.

A new panel, established under the dispute resolution rules of the U.S.-Mexico-Canada Agreement, is necessary because Canada failed to adequately respond to the first one, said U.S. Trade Representative Katherine Tai.

"The Canadian government's revised measures have not fixed the problem," Tai said in a statement.

"With this panel request, we are utilizing our available tools to enforce our trade agreements and ensure that U.S. workers, farmers, processors and exporters receive the full benefits of the USMCA."

She added: "Canada made commitments to the United States in the USMCA, and the Biden-Harris administration is ensuring that they honour those commitments."

International Trade Minister Mary Ng, who back in December 2021 framed the original panel's decision as a victory for Canada's controversial dairy supply management system, responded to the news Tuesday with a defiant note.

"We know how important stability and certainty are to our farmers, workers and businesses, and we will always work to ensure that trade rules are implemented as intended," Ng said.

"Canada will continue to defend our supply management system and the market access which was agreed upon with the U.S. We will stand firm against attempts to renegotiate during this dispute settlement panel process."

Disputes and disagreements have become a defining characteristic of the USMCA, often called CUSMA in Canada, since it became the law of the land in the summer of 2020.

Canada and the U.S. are together taking Mexico to task for energy policies they say unfairly favour domestic suppliers and threaten to undermine American efforts to jump-start the green energy industry and combat climate change.

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

The U.S. has been silent on whether it intends to comply with that decision — and that could be a component of the decision to press Canada on dairy, said Dan Ujczo, a lawyer with Thompson Hine in Columbus, Ohio, who specializes in North American trade law.

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

"It's like a circular firing squad — that's what the USMCA disputes are right now," Ujczo told a seminar Tuesday about how the trade landscape in the U.S. and around the world is likely to evolve in 2023.

"All of these are interconnected: 'If you're going to not implement dairy, then we're not going to implement autos.' So it's a piece of leverage."

Both the National Milk Producers Federation and the U.S. Dairy Export Council cheered Tai's decision.

Canadian quota practices are causing direct harm to U.S. farmers, processors and others in the industry "by unfairly restricting access to their market," said federation president and CEO Jim Mulhern.

"Canada has shown a pattern of not living up to the dairy commitments it has made in trade agreements," added Krysta Harden, head of the export council. "As long as they continue to drag their feet, we’ll continue to work with USTR and USDA to fight back, and propose retaliatory action if necessary."

This report by The Canadian Press was first published Jan. 31, 2023.