Ag Policy Blog

USTR Takes Action Against Canada on Dairy Quotas

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Milking cows at a Minnesota dairy operation in July 2019. The U.S. Trade Representative is raising questions with Canada about tariff-rate quotas for dairy products. USTR sees Canada trying to shut out greater exports from the U.S. (DTN photo by Chris Clayton)

The Trump administration on Wednesday filed an action against Canada under the U.S. Mexico Canada Agreement challenging how Canada is handling tariffs and quotas for dairy products.

The U.S. Dairy Export Council and National Milk Producers Federation applauded the action.

Essentially, the U.S. Trade Representative (USTR) initiated a "consultation request" under the USMCA over how Canada is allocating its dairy tariff-rate quotas under the trade deal.

The consultation request reflects some of the long-standing issues between the U.S. and Canada over dairy exports. Under USMCA, Canada can maintain 14 tariff-rate quotas on specific dairy products, including milk, cream, skim milk power, butter and cream powder, industrial cheeses, cheeses of all types, milk powder, products consisting of natural milk constituents, ice cream and ice cream mixes and other dairy.

According to USTR, Canada's published tariff-rate quotas set aside a percentage of quotas for processors, as well as so-called "further processors," which USTR states is contrary to Canada's USMCA commitments. USTR stated the restriction undermines U.S. producers and exporters by limiting their access to in-quota quantities guaranteed under USMCA.

“Canada's measures violate its commitments and harm U.S dairy farmers and producers," said U.S. Trade Ambassador Robert Lighthizer. We are disappointed that Canada's policies have made this first ever enforcement action under the USMCA necessary to ensure compliance with the agreement. This action demonstrates that the United States will not hesitate to use all tools available to guarantee American workers, farmers, ranchers, and businesses enjoy the benefits we bargained for.”

USMCA is forecast to boost U.S. dairy exports about $242 million, according to an analysis conducted last year. Canada is required under the deal to open up the tariff-rate quotas and eliminate two classes of milk Canada had created to specifically protect its markets. The agreement was expected to provide about 3.6% more access to the Canadian dairy market. Soon after the deal went into effect last July, U.S. dairy processors started raising concerns about Canada meeting its obligations.

Tom Vilsack, president and CEO of the U.S. Dairy Export Council -- and expected nominee to become U.S. Agriculture secretary again -- said USMCA was mean to improve trade with Canada and modify some of its trade-distorting dairy policies.

"We knew from day one that enforcement would be key to bringing the intended benefits home to America's dairy industry. 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," Vilsack said.

Sens Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, and Sen. Mike Crapo, chairman of the Senate Banking Committee, R-Idaho, as well as Sen. Ron Wyden, D-Ore, ranking member of the Senate Finance Committee, each issued statements supporting the action against Canada.

“The Trump administration is taking the right step for American dairy producers and farmers. One of the biggest improvements in the new USMCA are the provisions providing access to Canada's dairy market, which had unfairly restricted equitable access to American dairy for years. We hope our Canadian partners can resolve this issue without going to arbitration, but we are supportive of Ambassador Lighthizer's efforts either way," Grassley and Crapo stated.

USTR request to consult Canada on dairy tariff-rate quotas…

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