Canada faces U.S. action for alleged dairy offence over imports: reports
The United States is threatening trade action against Canada after U.S. politicians and industry groups complained the country was not making good on its promise to loosen restrictions on dairy imports.
U.S. Trade Representative Robert Lighthizer is set to announce an enforcement action under the United States-Mexico-Canada Agreement (USMCA), according to reports this week from Politico and Bloomberg News that cited government sources.
In a statement to the Financial Post on Tuesday, the U.S. Dairy Export Council said it expects Lighthizer to file the complaint in response to Canada's “failure to abide” by its commitments under USMCA to allow more U.S. dairy imports into Canada's heavily regulated dairy market.
Under the new USMCA, Canada agreed to expand its tariff-rate quotas, which are essentially the amount of dairy imports that can come into the country without prohibitive tariffs.
For example, the agreement will allow an extra 50,000 metric tonnes of fluid milk, and 12,500 metric tonnes of cheese, to enter Canada from the U.S. by the sixth year of the agreement.
The U.S. move represents the first enforcement action under the new trade deal.
That concession was viewed as significant progress for the U.S. dairy industry, which had long been critical of Canada's supply management system and its heavy tariffs on foreign dairy products.
“Of course, U.S. dairy farmers had high hopes,” said Nicolas Lamp, a former dispute settlement lawyer at the World Trade Organization who now teaches trade law at Queen's University in Kingston, Ont.
The excitement ended abruptly, however, in June when the Canadian government announced exactly how it planned to roll out that extra market access for U.S. imports.
“The thing with a quota is you have to decide who gets the quota,” Lamp said.
Canada's decision to give much of the new quota to domestic dairy processors through import permits riled U.S. politicians and U.S. dairy industry groups. The concern for U.S. producers, Lamp said, is that Canadian processors are more likely to import lower value milk products and turn them into higher value, retail ready products, rather than just import the high-value products.
“The economic value of the quota for the U.S. depends on the decisions that Canadian importers are making,” Lamp said.
The U.S. Dairy Export Council described Canada's quota allocation plan as a show of “disregard for its USMCA dairy commitments.” Jaime Castaneda, the council's senior vice-president of trade policy, said in a statement that Canada was “implementing its dairy tariff rate quota system in a manner designed to discourage full use of U.S. market access rights.”
For months, Lighthizer has been under significant bipartisan pressure from Congress to address the issue. A group of 25 senators wrote to Lighthizer in August, asking him to use measures laid out in USMCA “to hold our trading partners accountable to their trade commitments.” This week's U.S. media reports suggested that Lighthizer could kickstart USMCA'sformal dispute resolution process soon.
In the letter, the U.S. senators said Canada's method of allocating the tariff-rate quotas (TRQs) has restricted U.S. industry from extracting full value from the extra volume it is now able to send into Canada.
“Canada must administer its TRQs fairly and in a manner consistent with its obligations under USMCA,” the letter reads. “It cannot be allowed to administer TRQs in a manner that discourages utilization or restricts the ability of the U.S. dairy industry to completely fill the established TRQs at advantageous price points.”
Canadian International Trade Minister Mary Ng's office declined to comment on the reports of coming action from Lighthizer's office. But spokesperson Youmy Han denied allegations that Canada isn't making good on its dairy commitments under the agreement.
“Canada's administration of its dairy TRQs is in full compliance with its commitments under the new NAFTA,” she said in an email.
Lamp, at Queen's University, said the dispute over whether Canada is in compliance is “a really tricky” question.
“They may not be following the spirit of the agreement but, so far, I don't see how they're violating the letter of the agreement,” he said.
The U.S. Trade Representative's office did not respond to multiple requests for comment on Tuesday.