Canadian lawmakers have imposed strict limits on what dairy, poultry and egg concessions negotiators can put on the table during a forthcoming review of a North American free trade deal, causing consternation for U.S. industry.
A new bill signed into law Thursday instructs the Canadian administration not to increase dairy, poultry or egg tariff-rate import quota volumes or reduce out-of-quota tariff rates in any trade pact. The legislation, known as C-202, prevents the Canadian government from lowering duties on dairy imports above the quota volumes agreed to in the U.S.-Mexico-Canada Agreement when the pact comes up for review next year.
High out-of-quota tariff rates, while not a top negotiating priority for U.S. industry, have been a frequent target of President Donald Trump’s ire.
Trump complained to reporters in March that Canada maintains a “tremendously high tariff” on U.S. dairy imports, making it “impossible” for U.S. exporters to access the Canadian market. In a Truth Social post Friday in which he threatened to nix U.S.-Canada trade talks, Trump once again railed against the dairy duties and lamented American farmers’ lack of market access.
Canada accepts a certain amount of U.S. dairy products tariff-free, but imports above the thresholds are subject to tariff rates that often top 250%. The Canadian government uses a similar system to control domestic prices and supply for poultry and egg products.
Trump was not the cause of the new bill. It origins pre-date Trump, with an earlier version introduced in 2022. But Trump's focus on out-of-quota dairy tariff rates and repeated demands for reduction likely served as a catalyst, spurring lawmakers to act, multiple analysts said.
The proposal “had kind of gotten stuck in the Canadian Senate,” Becky Rasdall Vargas, senior vice president of trade policy at the International Dairy Foods Association told Agri-Pulse. The rapid approval from both chambers after the legislation was taken up again in May of this year is “probably reflective of the change in the bilateral relationship,” Rasdall Vargas added.
A Canadian ag industry source said that the bill’s swift passage could also be part of an effort to shore up new Prime Minister Mark Carney’s support in Canada’s dairy-producing provinces.
During the election campaign, much was made of Carney’s shaky French language skills. Election watchers openly speculated whether he could garner necessary support in francophone Quebec – also a major milk-producing region. However, he carried the province handily.
Protection for Canada’s dairy sector in trade negotiations “is more a question of the prime minister and his management of Quebec,” the ag industry source said, than what Trump said.
Regardless of reasoning behind the bill, its passage has many in the U.S. dairy industry on edge.
The dairy industry has not been pushing for an increase in Tariff Rate Quota volumes or a reduction in the out-of-quota tariff rates. In fact, the U.S. does not fill the quotas because of how Ottawa allocates them, the industry argues. Industry’s biggest ask in the USMCA review is for the U.S. to press Canada to adjust its quota allocation methods, which C-202 doesn't mention.
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But dairy producers are uneasy about the signal it sends to negotiators ahead of the planned 2026 USMCA review and what it might mean for the deal’s extension beyond 2036.
“It's sending a clear message,” Rasdall Vargas said.
Becky Rasdall Vargas (IDFA photo)She noted that it is common for legislative bodies to advance legislation alongside trade negotiations to shape deal outcomes, but domestic lawmakers do not typically tie negotiators' hands before talks begin.
“To set whole sectors aside like this, I've never seen anything like this before,” she said. “When legislation like this exists, it has a potential to become a limiting factor in how you're able to address long outstanding concerns – like our ability to access the quota,” she said.
Rasdall Vargas added that she’s “concerned about the prospects for a successful USMCA review process.”
Further, Tony Rice, director of trade policy at the National Milk Producers Federation, said he also finds the legislation “concerning” but noted that it leaves room for negotiations on another of NMPF’s biggest issues: Canada’s sales of nonfat milk solids into the U.S. at artificially low prices.
Multiple Canadian industry groups also oppose the bill. The Canadian Cattle Association branded the bill as “bad trade policy” in a statement. Meanwhile, the Canadian Agri-Food Trade Alliance shared U.S. concerns that the legislation sets a “troubling precedent” for future negotiations and undermines Canada’s commitment to the global rules-based trading system.
A Canadian industry source, however, doubted that the legislation would preclude constructive discussions over other dairy sector issues, like those Rasdall Vargas and Rice are eying.
The industry figure, granted anonymity to speak candidly about the law without fear of retribution, argued that the government likely views the bill as a codification of what Canadians, Americans and Mexicans already knew: that Canada’s dairy supply management system is here to stay.
Other issues beyond those specifically mentioned in the legislation are “on the table until everything’s decided,” they said.
But Marc Busch, a Canada-born international trade policy and law professor at Georgetown University in Washington, D.C., sees the legislation as Canada closing the door on a long-awaited opportunity to overhaul its supply management system.
Trump’s new tariffs on Canada have spurred provincial governments to deal with politically thorny issues like provincial trade barriers. Similarly, Busch argued that the tariffs could have provided the political cover needed to reform what he described as an unpopular supply management system that hurts Canadian consumers.
“This was a great opportunity,” Busch told Agri-Pulse. “It's a shame that this was the knee-jerk reaction.
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