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U.S. government cannot allow Canada to skirt USMCA rules

Michael Dykes

Michael Dykes, president and CEO of the International Dairy Foods Association, contributes this column bimonthly for Cheese Market News®.

As we near year three of the new U.S.-Mexico-Canada Agreement (USMCA) trade deal, American dairy processors and producers have yet to realize the promise of the agreement. Despite agreeing to remove many of its overly protective import controls and to improve market access for U.S. dairy, Canadian officials have continuously reengineered the country’s tariff-rate quotas (TRQs) to reserve access to dairy imports for Canadian producers.

In fact, a USMCA dispute panel in January found this action very clearly violates the terms of USMCA’s Agriculture Chapter. Case in point: Canada filled just 73% of the nation’s dairy quotas during the period of July 2020-July 2021, and the Canadian government has yet to fix its TRQ schedule. The U.S. government has been slow to act, and it’s high time that America hold Canada to account.

Unfortunately, we’ve known since the inception of USMCA that Canadian officials were attempting to skirt the USMCA terms. The day after the agreement took effect, the International Dairy Foods Association (IDFA) sent a letter to U.S. Trade Representative’s (USTR) then-Chief Agriculture Negotiator Gregg Doud alerting him that Canada was limiting certain U.S. dairy exports by maintaining restrictive TRQs and not moving quickly enough to implement a TRQ administration system consistent with USMCA. Ambassador Doud supported IDFA’s concerns by initiating consultations with the Canadian government on these concerns prior to leaving office.

Last year — after no improvement from Canada — IDFA worked with new USTR Ambassador Katherine Tai to take the historic step of initiating the first dispute settlement panel under USMCA. This dispute panel agreed with our case and found elements of Canada’s TRQ administration to be in breach of commitments under USMCA.

Despite this finding, the Canadian government in March released a plan to make minimal changes to its TRQ administration. IDFA has described the proposal as a “nonstarter” that demonstrates Canada is pursuing a bare minimum approach to compliance with the USMCA dispute panel report.

Very little has improved in the 22 months since USMCA took effect. Canada continues to discourage imports by setting aside quota allocation for Canadian processors. The nation is also restricting the ability of U.S. exporters to sell directly to Canadian retailers, among other practices.

The very purpose of a TRQ is to prevent a market from being flooded with sensitive imports by applying astronomically high tariffs to over-quota quantities of imports. Canada’s failure to allow USMCA TRQs to function as they should by manipulating their allocation policies shows that Canada never intended to provide the market access it committed to under USMCA.

U.S. dairy will not stand for this outcome. IDFA is urging USTR to take advantage of the dispute panel’s findings and dig in. The U.S. government should use this opportunity to set a precedent for future dispute settlements that allows the dairy industry to realize the full benefits promised under USMCA. Anything less signals to the rest of the world that the United States does not have the will to enforce the terms of its trade agreements.

The United States is poised to become the world’s leading supplier of nutritious, affordable, sustainable dairy products, but only if we develop and enforce strong, rules-based trade agreements — starting with our long-standing trade relationship with our neighbors to the north.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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