The U.S. announced Tuesday that it has won the first official dispute under the U.S.-Mexico-Canada Agreement after a three-member USMCA panel agreed that Canada breached dairy quota pledges under the trade pact.

“This historic win will help eliminate unjustified trade restrictions on American dairy products, and will ensure that the U.S. dairy industry and its workers get the full benefit of the USMCA to market and sell U.S. products to Canadian consumers,” U.S. Trade Representative Katherine Tai said in a statement Tuesday.

The panel agreed that Canada effectively lowered the value of USMCA quotas designed to increase U.S. access to Canada’s market for milk, cheese, cream, skim milk powder, butter, ice cream and whey.

“Today’s decision is an important victory for U.S. dairy farmers and the millions of Americans whose jobs are tied to the U.S. dairy industry,” said National Milk Producers Federation President and CEO Jim Mulhern.

The USTR, at the urging of the U.S. dairy industry, called for the panel on May 25 and asked it to rule on whether Canada should have the ability to prevent imports of higher-priced dairy products like cheese in order to protect domestic producers from foreign competition.

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Canada, the U.S. said, set aside portions of 14 separate quotas for processors that import cheaper dairy ingredients. The goal, U.S. industry groups said, was to ensure that Canadian retailers and restaurants bought more of the expensive dairy products from domestic suppliers. U.S. industry groups accused Canada of giving 85% of the quotas to processors so they would buy lower-value U.S. products that don’t compete with Canadian products.

“We expect Canada to abide by its trade commitments so that the American dairy industry can fully access the Canadian markets just as USMCA promised," said Krysta Harden, president and CEO of the U.S. Dairy Export Council. “While this is an essential victory, it is one step in a much longer journey.”

The International Dairy Foods Association, together with the International Cheese Council of Canada, the Dairy Companies Association of New Zealand and Eucolait, a European dairy trade group, say they are encouraging “U.S. and Canadian governments to work collaboratively towards an outcome that provides impacted industries with fair and equitable [tariff rate quota] administration that facilitates greater market certainty.” 

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