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U.S. wins dispute with Canada for breaching its USMCA dairy commitments

Sen. Schumer: Ruling will level the field and help New York dairy farmers churn up milk profits.

NEW YORK — Senate Majority Leader Charles Schumer announced Wednesday that the U.S. won the United States-Mexico-Canada Agreement dispute with Canada for breaching dairy commitments.

After concerns about Canada’s allocation of tariff-rate quotas for U.S. exports of dairy products in June 2020 and again in September 2020, that led to the office of the U.S. Trade Representative taking on its first-ever USMCA enforcement action in December 2020.

Sen. Schumer said this ruling will allow Upstate New York dairy farmers, many of who are still struggling from the economic impacts of the pandemic, to fully benefit from the expanded market access opportunities and will eliminate unfair practices that hurt their bottom lines.

“Dairy farmers are the lifeblood of the Upstate economy, and today’s ruling is a massive win for them,” said Senator Schumer. “Dairy farmers in New York and across the country are still being squeezed by the economic impacts of the pandemic, and now more than ever depend on stable and fair rules to compete equitably in the nearby Canadian market. This decision will ensure the Upstate New York dairy industry fully benefits from the USMCA agreement’s expanded market access opportunities, unimpeded by unreasonable trade barriers, and will help our dairy farmers churn up profits and mitigate the huge losses they have suffered this year.”

Schumer also said that under USMCA, Canada agreed to an expansion of tariff-rate quotas for several categories of U.S. dairy products. 

TRQs are a system of tariffs negotiated between countries that allow a predetermined quantity of imports at a specified and often very low tariff rate. Imports above the predetermined quantity are subject to a higher tariff rate that typically prices U.S. dairy products out of the Canadian market.

Due to this, securing fair access to Canadian dairy TRQs is vital to ensuring New York’s farmers have equitable access to that market. Concerns were raised in June 2020 that the unfair way Canada was allocating its TRQs weakened the intent of the USMCA and as a result, New York dairy farmers and exporters were unable to make full use of USMCA’s benefits. 

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Below is Schumer’s original September 2020 letter to Ambassador Lighthizer and Secretary Perdue:

Dear Ambassador Lighthizer and Secretary Perdue:

With the U.S.-Mexico-Canada Agreement (USMCA) now in effect as of July 1, we write urging you to ensure that both Canada and Mexico are held accountable to their dairy trade obligations in the agreement. It is of particular importance that dairy farmers in New York and across the country – many of whom are struggling as a result of this unprecedented economic crisis – fully benefit from the expanded market access opportunities and the elimination of unfair practices under USMCA.

We have heard concerns from the New York dairy industry regarding Canada’s recent allocation of tariff-rate quotas (TRQs) for U.S. exports of several categories of dairy products, including milk, cheese, and yogurt. While the new tariff-rate quota commitments were intended to provide U.S. dairy producers with greater access to Canada’s dairy market, it is our understanding that Canada’s announced TRQs place U.S. producers at a disadvantage and are inconsistent with the market access provisions secured in agreement. Canada cannot be allowed to evade its trade obligations in order to protect its tightly-controlled dairy market and must fairly administer its TRQs as agreed to under USMCA.

Another key issue is ensuring the full elimination of Canada’s Class 6 and 7 milk price classification programs, which was a top priority of ours during the USMCA negotiations. As you are aware, Class 6 and 7 are market-distorting supply management programs that allow for the dumping of Canadian milk products onto the global market at artificially low prices, causing significant harm to New York dairy producers. While it was encouraging to see the elimination of these programs included in the final agreement, there are outstanding concerns from the U.S. dairy industry about Canada providing sufficient transparency on dairy pricing, which is critical for establishing a baseline against which the U.S. can evaluate Canada’s new post-Class 6 and 7 pricing policies, as well as with how Canada implements its USMCA dairy export surcharge commitments. There must be vigilant monitoring to ensure Canada complies with its commitment to eliminate these programs with full transparency, and in a manner that does not reproduce the programs’ harmful effects through different means.

Additionally, in a side letter accompanying USMCA, Mexico affirmed a list of more than 30 terms for cheese that would remain available as common names for U.S. cheese producers when exporting to Mexico. It is critical that our domestic producers continue to have the opportunity to sell products to consumers in Mexico using common cheese names and that New York dairy exporters do not lose the valuable market share they have spent years fighting for. As such, Mexico must translate its USMCA commitments into regulations in a way that ensures commonly-used cheese names specified in the agreement are respected.

Our hardworking dairy producers in New York and across the U.S. deserve to fully benefit from the provisions secured in USMCA. We, therefore, ask for your commitment to raise these concerns with your government counterparts in Canada and Mexico as soon as practicable and to take the appropriate enforcement measures going forward to ensure both countries’ dairy trade obligations are upheld.