WASHINGTON—The U.S. prevailed over Canada in a long-running dispute over Canadian policies aimed at shielding its dairy industry from American competition, according to a ruling published Tuesday from the first dispute resolution panel under the new U.S.-Mexico-Canada Agreement.
The USMCA panel ruled that Canada’s policies violated its obligations under the trade deal between the three countries, which was agreed upon in 2018 and took effect in 2020. Canada has until Feb. 3 to bring its policies into compliance, or else face possible tariffs or other countermeasures from the U.S.
“This historic win will help eliminate unjustified trade restrictions on American dairy products, and will ensure that the U.S. dairy industry and its workers get the full benefit of the USMCA to market and sell U.S. products to Canadian consumers,” U.S. Trade Representative
Katherine Tai,
the Biden administration’s top trade negotiator, said in a statement.
At the heart of the dispute is a U.S. complaint that Canada unfairly uses a complex set of tariff-rate quotas, under a system known as supply management, that sets aside a share of the dairy market exclusively for Canadian dairy processors in a way that violates what Canada agreed to in 2018.
The Canadian side, in a joint statement from Canada’s trade and agriculture ministers, said it was pleased with Tuesday’s ruling because in its view the panel confirmed that Canada’s overall system for supply management was legitimate, despite ruling that its specific allocation of tariff-rate quotas needed to be changed.
Canada acknowledged the panel’s ruling and the Feb. 3 deadline to comply, but added it “will continue to stand up for its dairy industry, farmers and workers and the communities they support,” the statement said.
The Trump administration filed an initial complaint about Canada’s practices in December 2020. The U.S. and Canada discussed the complaint at the time but failed to resolve the issue.
In May 2021, the U.S. triggered the dispute resolution process of the USMCA for the first time.
The three-member dispute-resolution panel was established under the rules of the USMCA designed to pick independent panelists with expertise in international law and trade treaties. This dairy panel was headed by Elbio Rosselli, a diplomat from Uruguay.
Canada’s dairy producers have long fought against opening their market. The country has around 11,000 commercial farms that hold substantial political sway because they are located in a politically important region: rural central Canada, especially French-speaking Quebec.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
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