The U.S. is again demanding to enter into official consultations with Canada over complaints that the country manipulates its dairy import quotas to stymie U.S. exports, the Office of the U.S. Trade Representative said Wednesday. Those consultations could lead to the U.S. calling for a second dispute panel under the U.S.-Mexico-Canada Agreement.

The USTR announcement Wednesday comes less than two weeks after Agriculture Secretary Tom Vilsack aired strong complaints that Canada was not adhering to the first panel’s ruling, which noted that Canada essentially lowered the value of USMCA quotas that were supposed to increase U.S. access to Canada’s dairy market.

Canadian restrictions on the quotas for milk, cheese, cream, skim milk powder, butter, ice cream and whey have only worsened since the original panel ruled the favor of the U.S., USTR Katherine Tai said Wednesday.

“I am deeply troubled by Canada’s decision to expand its dairy tariff-rate quota restrictions,” Tai said. “We communicated clearly to Canada that its new policies are not consistent with the USMCA and prevent U.S. workers, producers, farmers, and exporters from getting the full benefit of the market access that Canada committed to under the USMCA.”

Core to the U.S. complaint is that Canada continues to allow its large processors to control the quota allocations while retailers and food service operators are denied access. U.S. dairy processors want to sell more cheese and other high-value products to Canadian retailers and importers, but the allocation system Canada erected after USMCA was implemented prevents that from happening, according to U.S. and Canadian industry representatives.

The Office of the USTR also said that it is “challenging Canada’s failure to fully allocate its annual dairy TRQs” and stressed that Canada “is instead parceling out a few months’ quota at a time. Through these measures, Canada undermines the market access that it agreed to provide in the USMCA.” 

The U.S. dairy industry, which had been calling for retaliatory tariffs after Canada earlier this month published its latest proposal to fix its quota system, lauded the Wednesday announcement by the Office of the USTR.

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“On behalf of U.S. dairy, (the International Dairy Foods Association) applauds the aggressive action taken today by USTR to hold Canada accountable for trade commitments made under USMCA and refusing to administer their dairy TRQs in a manner compliant with the agreement,” said IDFA President and CEO Michael Dykes.

National Milk Producers Federation Jim Mulhern said, “Prime Minister (Justin) Trudeau regularly pledges Canada supports a rules-based global order built on cooperation and partnership, yet Canada continues to flout these trade commitments and plays games rather than meet its signed treaty commitments.”

Canada first published a preliminary proposal to fix its quotas in March and then issued its second and final version May 16. U.S. dairy industry representatives complained bitterly about both versions and Vilsack first aired his complaints in an interview with Agri-Pulse on May 14.

“I very forcefully conveyed our significant disappointment in the response to the panel’s discussion under USMCA on the issue of whether or not Canada would open up the TRQ under USMCA for dairy to include their retailers,” Vilsack said in that interview about his discussions with Canadian Agriculture Minister Marie-Claude Bibeau. 

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