Key Takeaways
- The U.S. dairy industry is urging negotiators to include a catch-up clause in the upcoming USMCA review to address underutilized tariff-rate quotas (TRQs) by Canada.
- Canada’s strict quota management has led to significant underfilling, with U.S. dairy exports operating at just a third of permissible volume.
- Concerns over Canada’s quota administration have extended beyond dairy, with calls for reforms and potential penalties for non-compliance ahead of the USMCA’s six-year review in 2026.
U.S. negotiators are being called upon to advocate for a catch-up clause in the upcoming review of the United States-Mexico-Canada Agreement (USMCA) to address perceived mismanagement of tariff-rate quotas (TRQs) by the Canadian government. Shawna Morris, executive vice president for trade policy and global affairs at the U.S. Dairy Export Council and the National Milk Producers Federation, emphasized during a Washington International Trade Association webinar that American dairy exporters have lost access to significant markets due to Canada’s underutilization of import quotas. “We’ve been cheated out of a lot of access,” Morris stated, highlighting the urgency for rectifying this issue.
Canada ranks as the second-largest market for U.S. dairy products, a key component of international trade, but stringent limits imposed by the Canadian government are a protective measure for its domestic dairy industry. These import quotas have frequently remained underfilled due to the allocation process, primarily granting TRQs to processors instead of retailers or food service establishments that could increase demand for U.S. dairy.
Morris illustrated the problem with current statistics, indicating that only about one-third of U.S. milk exports are utilized, with yogurt fill rates even lower at 10%. In light of these challenges, she is advocating for reforms that include penalties for unutilized quota allocations and a mechanism for Canada to compensate for past shortfalls.
The 2026 review of the USMCA provides an opportunity to adjust the agreement and potentially extend its duration beyond 2036. The Canadian dairy access issue also exposes weaknesses within the USMCA’s dispute resolution framework. A panel had previously ruled in favor of the U.S. in 2022, highlighting that Canada’s initial quota allocator practices breached USMCA obligations. However, Morris remarked that Canada merely modified its allocation method rather than embracing comprehensive reform.
Disputes surrounding Canada’s TRQ practices are not limited to U.S. grievances; New Zealand has also raised concerns under a separate trade agreement with Canada, leading to similar findings regarding violations of TRQ terms. The dissatisfaction extends to the broader trade landscape as industry groups from the U.S., Australia, and New Zealand have accused Canada of selling dairy protein products at unfair prices, influenced by its supply management system.
As the USMCA review approaches, preparing for the future remains uncertain, and some experts believe the likelihood of extending the agreement for an additional 16 years is low given various existing challenges. Eric Gottwald, a trade specialist at the AFL-CIO, indicated that “too many pain points” could hinder negotiations. Should an extension not be achieved, the parties would engage in annual reviews to assess and possibly adapt the agreement over the next decade.
As discussions unfold, those involved anticipate a complex and contentious process leading up to and following the USMCA review. The coming years are expected to be particularly challenging for U.S.-Canada dairy trade relations, raising critical questions about fairness and market access in North American trade.
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