Ottawa, Ontario—Three US dairy industry organizations are urging Canada to reform its policies regarding the administration and allocation of its dairy tariff rate quotas (TRQs).

Earlier this year, Global Affairs Canada announced that it was resuming consultations under Phase II of its comprehensive review of the allocation and administration of TRQs for dairy, poultry and egg products. These TRQs are a key pillar of Canada’s supply management system.

Global Affairs Canada had launched Phase I of its TRQ allocation and administration policy review in May 2019. National Milk Producers Federation (NMPF), US Dairy Export Council (USDEC) and International Dairy Foods Association (IDFA) provided input a year ago in response to an invitation for comment by Global Affairs Canada.

Canada’s proposed options to have separate allocation processes for processors/distributors/ retailers and for further processors is “fundamentally inconsistent” with provisions of the Canada-United States-Mexico Agreement (CUSMA, known in the US as the US-Mexico-Canada Agreement, or USMCA), the three dairy organizations noted.

CUSMA dairy TRQs should have no restrictions on or designations of allocations to distributors, retailers, processors, food service establishments or further processors and must be handled in a manner that is not discriminatory between the various types of users, the US dairy groups stated. CUSMA specifically and purposefully does not allow for limiting or designating allocations to a subset of those “active in the Canadian food or agriculture sector,” as Canada appears to be suggesting in its options.

In addition, any allocation mechanism based on market share and limited to any type of processor would result in further inconsistency with CUSMA commitments to not condition access to an allocation based on the purchase of domestic production or to provide for and not discriminate against new importers, NMPF, USDEC and IDFA added.

Regarding the allocation of unallocated quota, the three US dairy organizations support an option that will ensure that the TRQs can be filled efficiently while maximizing the value of the goods imported.

As far as policy options for the allocation of supply-managed TRQs are concerned, in order for Canada’s TRQ allocations to be responsive to market conditions, they need to be given to eligible applicants that will actually import the product, and not to applicants that have little incentive to import, the three US dairy groups said.

They strongly encouraged that Canada fully abide by CUSMA and ensure that CUSMA TRQ allocations are available to all eligible applicants active in the Canadian food and agriculture sector sector, including but not limited to food retailers and food importers as allowed for in CUSMA, and that there are no limits on allocations to different types of processors.

NMPF, USDEC and IDFA have objected to Canada’s failure to administer the WTO fluid milk TRQ through a TRQ import licensing/permit mechanism as it does with other TRQs. Instead, they said, Canada makes the “unverifiable assumption” that cross border shoppers fill the WTO milk TRQ.

“We encourage Canada to reconsider its position and to operate the WTO fluid milk TRQ in a manner consistent with CUSMA provisions,” NMPF, USDEC and IDFA said.

For purposes of minimizing unwarranted burdens on businesses and trade by having multiple TRQ administration methods, the three US organizations urged Canada to have the same allocation and administration procedures for its WTO dairy TRQs as it will have when its CUSMA TRQ administration and allocation procedures are aligned with Canada’s CUSMA obligations.

NMPF, USDEC and IDFA also reminded Canada of its obligations to provide the US government at least 45-day notice prior to the proposed effective date of any new or additional condition, limit, or eligibility requirement for CUSMA TRQs, and that Canada must hold any consultations requested as a result of that notice promptly.

“USMCA negotiations resulted in clear new access for the United States dairy industry. In contrast with virtually all other sectors of the US-Canadian economies, the level of dairy access is tightly prescribed by the agreement. That makes it all the more important that our industry can benefit from the full value of those dairy commitments,” said Krysta Harden, USDEC’s president and CEO.

“Canada needs to stop manipulating its dairy TRQs; its actions have not only negatively impacted US dairy farmers and manufacturers, but also constrained many Canadian companies from being able to make use of these new TRQs to expand their supply options,” Harden continued.

“USMCA lays out clear requirements on TRQ procedures and we urge the US government to ensure full compliance by Canada with those commitments.”

In December 2020, then-US Trade Representative Robert Lighthizer had said that the US was challenging Canada’s allocation of dairy TRQs. If the countries are not able to resolve concerns through consultations, the US may request the stablishment of a dispute settlement panel to examine the matter.

“For too long, prices received by US dairy farmers have been undermined by Canadian dairy policies. USMCA commitments provided for a controlled expansion of access for US exports to finally crack open the door to Canada’s market a bit further. It’s time for Canada to stop playing games and address concerns related to the administration of its TRQs,” said Jim Mulhern, NMPF’s president and CEO. “Canada is failing to meet its trade obligations by manipulating import license procedures and minimizing the ability of US dairy farmers to have full access to the benefits of USMCA. That needs to stop, and we look forward to working with the Biden administration to ensure it does.”

“We are pleased to partner with our colleagues to present a united front to Canada that emphasizes the US dairy industry’s continued request for Canada to honor its USMCA commitments,” stated Michael Dykes, IDFA’s president and CEO. “We continue to ask our US government colleagues to hold Canada accountable to honor its USMCA commitments and to align its TRQ policies with its international obligations.”