After months of complaints from U.S. dairy farmers, the Trump administration took the first step Wednesday in challenging Canada’s implementation of new tariff rate quotas. The two countries will now begin consultations under dispute rules laid out in the U.S.-Mexico-Canada Agreement, which could lead to the formation of an official dispute panel.

“President Trump successfully renegotiated the USMCA to replace the failed NAFTA, and a key improvement was to give U.S. dairy producers fairer access to Canada’s highly protected dairy market,” U.S. Trade Representative Robert Lighthizer said. “Canada’s measures violate its commitments and harm U.S dairy farmers and producers. We are disappointed that Canada’s policies have made this first-ever enforcement action under the USMCA necessary to ensure compliance with the agreement."

Lighthizer "provided official notice to Canada that it was exercising its rights to enforce the USMCA in a letter to Canada’s Minister of Small Business, Export Promotion and International Trade Mary Ng," USTR said in a news release.

Canada agreed to increase, albeit by small quantities, U.S. access to its market through new tariff rate quotas for milk, cheese, cream, skim milk powder, butter, ice cream, whey and other dairy products, but the Canadians are manipulating those TRQs to minimize the gains that the U.S. dairy sector was hoping to fully take advantage of in USMCA. 

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Canada is operating the TRQs to give 85% of them to Canadian processors so they can buy products that don’t compete with Canadian products, according to U.S dairy industry officials. The result is that the U.S. is not able to export more of the high-priority products, like mozzarella directly to restaurants, for instance.

The USTR confirmed Wednesday that Canada, contrary to promises under USMCA, “sets aside and reserves a percentage of the quota for processors and for so-called ‘further processors’. … This restriction undermines the value of Canada’s TRQs for U.S. producers and exporters by limiting their access to in-quota quantities negotiated under the USMCA.”

“We knew from day one that enforcement would be key to bringing the intended benefits home to America’s dairy industry,” said Tom Vilsack, president and CEO of the U.S. Dairy Export Council. “I applaud USTR for hearing our concerns and relying on our guidance to take this critical enforcement step to ensure that the agreement is executed in both letter and spirit.”

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