Spilling More Milk: Canada’s Dairy Quota Allocation Practices Under Siege as the United States requests consultations under the CUSMA for its second challenge against Canada’s TRQ allocation measures

On 25 May 2022, the United States invoked the dispute settlement procedures of the Canada-United States-Mexico Agreement (CUSMA) by requesting consultations concerning Canada’s dairy product tariff-rate quota (TRQ) allocation practices. Earlier this month, New Zealand challenged similar allocation practices under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (see Daring to Challenge Dairy: New Zealand Challenges Canada’s Implementation of Dairy Quotas under the CPTPP).

Rather than the high Canadian tariffs otherwise applicable to dairy imports, the TRQs provide duty-free access for specified annual quantities of certain dairy products. Canada’s TRQs are set out in Appendix 2: Tariff Schedule of Canada (Tariff Rate Quotas) and the TRQ administration provisions are set out in Article 3.A.2 of the CUSMA.

This is the second Canada-US dispute over dairy TRQ allocation practices. A CUSMA dispute settlement panel found last December that “Canada’s practice of reserving TRQ pools exclusively for the use of processors is inconsistent with Canada’s commitment in Article 3.A.2.11(b) of the Treaty not to limit access to an allocation to processors.” Although Canada took measures to implement the panel’s ruling, the United States alleges that the revised TRQ allocation measures remain inconsistent with Canada’s CUSMA obligations. Specifically, it alleges that Canada denies access to TRQ allocations to all types of importers except for processors, further processors, and distributors. This means that other types of importers, including retailers and food service operators, are not eligible to apply for a TRQ allocation. The United States is also challenging Canada’s “12-month activity” requirement, which specifies that TRQ allocation recipients must remain active during all 12 months of the quota year, and it is challenging Canada’s failure to fully allocate the 2022 dairy TRQs.

The first CUMSA panel issued its report approximately 1 year after the United States requested consultations. If the same timeframe is followed in this dispute, a decision can be expected in May 2023.

Tereposky & DeRose LLP regularly provides advice and acts as counsel in international trade disputes. If you have any questions about the foregoing subject, please do not hesitate to contact us.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Daring to challenge Dairy: New Zealand challenges Canada’s implementation of Dairy Quotas under the CPTPP

The first dispute has been initiated under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). On 12 May 2022, New Zealand requested consultations concerning Canada’s implementation of its obligations regarding tariff rate quotas (TRQs).  Rather than the high tariffs otherwise applicable to dairy imports, the TRQs provide duty-free access for specified annual quantities of the following dairy products:

TRQ-CA1: Milk

TRQ-CA2: Cream

TRQ-CA3: Skim Milk Powders

TRQ-CA4: Milk Powders

TRQ-CA5: Cream Powders

TRQ-CA6: Concentrated Milk

TRQ-CA7: Yogurt and Buttermilk

TRQ-CA8: Powdered Buttermilk

TRQ-CA9: Whey Powder

TRQ-CA10: Products Consisting of Natural Milk Constituents

TRQ-CA11: Butter

TRQ-CA12: Industrial Cheese

TRQ-CA13: Mozzarella and Prepared Cheese

TRQ-CA14: Cheeses of All Types

TRQ-CA15: Ice Cream and Mixes

TRQ-CA16: Other Dairy

New Zealand is a large exporter of dairy products. It claims that Canada’s implementation of the diary TRQs:

“is impacting New Zealand exporters who are not able to fully benefit from the market access that was negotiated under the agreement. Many of Canada’s dairy TRQs remain unfilled and this represents a tangible loss to New Zealand’s dairy exporters.  The value to New Zealand of this lost market access is estimated to be approximately $68 million over the first two years, with this expected to increase year on year as the size of these quotas increase under CPTPP”.

Under the CPTPP dispute settlement procedure, Canada has until 19 May 2022 to reply in writing to the request and then has until 11 June 2022 to enter into consultations with New Zealand. If consultations fail to resolve the dispute, New Zealand could request the establishment of a dispute settlement panel as early as 11 July 2022. Assuming the normal timeframes are followed, the panel process will take approximately eight months with a final report issued around March 2023.

Tereposky & DeRose LLP regularly provides advice and acts as counsel in international trade disputes. If you have any questions about the foregoing subject, please do not hesitate to contact us.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com