US advances USMCA dispute panel to enforce Canada's dairy commitments

Wisconsin State Farmer
Both Canada and Mexico continue to thwart their trade commitments as outlined in the USMCA.

Ambassador Katherine Tai announced this week that the United States has requested and established a dispute settlement panel under the United States-Mexico-Canada Agreement (USMCA) to review measures adopted by the Government of Canada that undermine the ability of American dairy exporters to sell a wide range of products to Canadian consumers.

According to the Office of the U.S. Trade Representative (USTR), the U.S. is challenging Canada’s allocation of dairy tariff-rate quotas (TRQs), specifically the set-aside of a percentage of each dairy TRQ exclusively for Canadian processors. These measures deny the ability of U.S. dairy farmers, workers, and exporters to utilize the TRQs and realize the full benefit of the USMCA.  

Katherine Tai is the Biden administration's choice to take over as the U.S. trade representative.

“A top priority for the Biden-Harris Administration is fully enforcing the USMCA and ensuring that it benefits American workers,” said Ambassador Tai.  “Launching the first panel request under the agreement will ensure our dairy industry and its workers can seize new opportunities under the USMCA to market and sell U.S. products to Canadian consumers.”

A tariff-rate quota applies a preferential rate of duty to an “in-quota” quantity of imports and a different rate to imports above that in-quota quantity.  Under the USMCA, Canada has the right to maintain 14 TRQs on dairy products: milk, cream, skim milk powder, butter and cream powder, industrial cheeses, cheeses of all types, milk powders, concentrated or condensed milk, yogurt and buttermilk, powdered buttermilk, whey powder, products consisting of natural milk constituents, ice cream and ice cream mixes, and other dairy.

In notices to importers that Canada published in June and October 2020 and May 2021 for dairy TRQs, Canada sets aside and reserves a percentage of the quota for processors and for so-called “further processors”, contrary to Canada’s USMCA commitments. This restriction undermines the value of Canada’s dairy TRQs for U.S. farmers and exporters by limiting their access to in-quota quantities negotiated under the USMCA.  

U.S. Agriculture Secretary Tom Vilsack said the panel is an important step for American agriculture, and one that brings the U.S. dairy sector closer to realizing the full benefits of the USMCA.

"Ambassador Tai's action today will help ensure that Canada upholds its commitments under the USMCA and puts our other agricultural trading partners on notice that they must play by the rules," he said.

Vilsack says he is hopeful of a swift resolution that allows Canadian consumers access to high-quality U.S. dairy products and delivers the economic opportunities promised under USMCA to U.S. dairy farmers.

Brody Stapel

“International trade is key to economic growth and stability for our dairy farmers and processors. That’s why additional market access into Canada is an important part of USMCA,” Edge President Brody Stapel, a Wisconsin dairy farmer, said. “Edge and our farmers appreciate USTR’s commitment to holding Canada to the agreement and giving the U.S. dairy community greater export opportunities as intended.”

Edge has aggressively pushed for the USTR’s enforcement action after the issue first arose last summer. Most recently, the co-op worked with Congress to raise the issue during Tai’s confirmation hearings and was among a group of dairy organizations that sent a letter to the USTR earlier this month. 

Under the previous administration, USTR took an initial enforcement step in December by seeking consultations, which did not resolve the issue. In the new action, USTR asked for the establishment of a dispute settlement panel, which is expected to issue a report later this year.

Jeff Lyon

Jeff Lyon, general manager at FarmFirst, says Canada continues to thwart their trade commitments as outlined in the USMCA. If the panel (called for by Ambassador Tai) determines a lack of compliance, the U.S. would then be granted the right to impose retaliatory duties if Canada fails to fix its problematic TRQ administrative practices.

“...U.S. dairy farmers and processors deserve to utilize the full market opportunities that were sought after for them in the USMCA,” says Lyon. “Now is the time to make it very clear to Canada’s trade leaders – that failure to meet their agriculture trade obligations will have consequences. Canada needs to stop building barriers in spite of the trade agreements they’ve signed and participate as a good trading partner.”

Rep. Ron Kind of Wisconsin was among legislators sending a bipartisan letter to Tai and Secretary of Agriculture Thomas J. Vilsack calling on them to move forward with enforcement measures negotiated in the USMCA to support U.S. dairy farmers.     

"Trade agreements work best when they are fully enforced, which is why I spent years working with colleagues on both sides of the aisle to make sure USMCA is fully enforceable and Wisconsin dairy farmers are able to compete on an even playing field," Kind said.

This panel request is the most recent in a series of enforcement actions the United States has taken under the USMCA. On May 12, 2021, the U.S. made the first-ever request under the USMCA Facility-Specific Rapid Response Labor Mechanism – specifically, a request that Mexico conduct a review of whether a Denial of Rights is occurring to workers at the General Motors de México facility in Silao, State of Guanajuato.

The U.S. officially filed its first labor complaint with Mexico Wednesday under the USMCA trade agreement, after an old-guard union was caught allegedly destroying ballots at a General Motors plant in northern Mexico.

The mechanism allows a panel to determine whether Mexico is enforcing labor laws that allow workers to choose their union and vote on contracts and union leadership. If Mexico is found not to be enforcing its laws, sanctions could be invoked, including prohibiting some products from entering the United States.

“Using USMCA to help protect freedom of association and collective bargaining rights in Mexico helps workers both at home and in Mexico, by stopping a race to the bottom,” said U.S. Trade Representative Katherine Tai.

Mexican auto workers make one-eighth to one-tenth of the wages of their U.S. counterparts, something that has spurred a massive relocation of auto plants to Mexico and a loss of U.S. jobs.

For decades, corrupt Mexican unions signed low-wage "protection contracts” behind workers’ backs, often before plants were even opened. Union votes were held by show of hands, or not at all. Workers at many factories in Mexico were unaware they even had a union until they saw dues deducted from their paychecks.

As part of efforts to get the USMCA, which replaced the old North American Free Trade Agreement, Mexico passed labor law reforms stating all union votes would be by secret ballot, and workers at all factories in Mexico could vote on whether to keep their current union.

Associated Press contributed to this report