Canada-United Sates-Mexico Agreement (CUSMA) Dispute Settlement Panel Issues Final Report

On January 4, 2022 the CUSMA Dispute Settlement Panel published its report on Canada’s administration of its dairy tariff rate quota (TRQ). At the centre of the dispute is how Canada has allocated its TRQs – the quantities of dairy products such as milks, cheeses, powders, yogurt and ice cream that can be imported at lower duty levels under the terms of CUSMA.
 
The report finds on the one hand 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.”
 
On the other hand, the report finds that “nothing in the panel’s ruling constrains Canada’s discretion to administer its TRQ however it wants, within the treaty’s set limits. Quite the contrary – Canada has significant discretion in designing and implementing its allocation mechanisms.” And further, “The Panel agrees with Canada that the design of an allocation mechanism, including who may obtain an allocation, is left up to the discretion of the importing Party, in this case Canada, to determine, subject to consistency with the other provisions of the Agreement.”
 
Reaction to the decision has been mixed, with both countries claiming victory. U.S. Trade Representative Katherine Tai proclaimed that “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 (as it is known in the United States) to market and sell U.S. products to Canadian consumers.”
 
For Canada’s part, International Trade Minister Mary Ng and Agriculture and Agri-food Minister Marie-Claude Bibeau declared that “We are pleased with the dispute settlement panel’s report, which ruled overwhelmingly in favour of Canada and its dairy industry. In particular, it is important to note that the panel expressly recognizes the legitimacy of Canada’s supply management system. The panel also confirms that Canada has the discretion to manage its TRQ allocation policies under CUSMA in a manner that supports Canada’s supply management system.” 
 
Canada now has until February 3 to propose the measures it will take to comply with the CUSMA panel’s decision. The federal government has indicated that it will work with the industry to ensure that its TRQ allocation mechanism satisfies the panel’s decision. 
 
The final panel report is available here.