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.