U.S. negotiators should push for a catch-up clause in the forthcoming U.S.-Mexico-Canada Agreement review to make up for what they see as Ottawa’s mismanagement of tariff-rate quotas, according to a dairy industry representative.
“We've been cheated out of a lot of access that our exporters should have been able to sell over the last few years and we need a catch up to be able to fix the issues,” said Shawna Morris, executive vice president for trade policy and global affairs at the U.S. Dairy Export Council and the National Milk Producers Federation, during a Friday webinar hosted by the Washington International Trade Association.
Canada is the U.S.’ second-largest market for dairy products, according to the International Dairy Foods Association, but the Canadian government maintains strict limits on the volume of imports from the U.S. to protect its domestic industry. These import quotas have gone underfilled in recent years because of how Ottawa allocates the quotas, however.
U.S. milk exports in 2024, Morris said, were around a third of the total volume permitted under the TRQs. The fill rate for yogurt was even lower at 10%.
The dairy industry has long complained that Ottawa’s administration of the quotas deliberately fosters underuse. The government gives the bulk of the TRQs to processors, leaving only a limited share for retailers, restaurants and food service providers that might have more demand for the U.S. products. Accordingly, Morris is angling for a catch-up clause that would see Canada backfill its unfulfilled quotas, as well as penalties for entities not using their allocated quotas.
“What we need out of this is actual reform to fundamentally fix the crux of the problem here,” Morris said.
The USMCA comes up for its six-year review next year, where the parties can make adjustments and determine whether or not to renew the agreement for another 16 years. Absent renewal, the deal is set to expire in 2036.
The Canadian dairy market access issue has also highlighted shortcomings in the agreement’s dispute settlement system, Morris and others said. The U.S. won a dispute resolution case in 2022 when a panel found that Canada’s efforts to set aside a specific percentage of the quota for processors violated its USMCA commitments.
“Canada's response was simply to remove those percentage earmarks but create a new allocation process that effectively replicated the results,” Morris said.
The U.S. brought another case against Ottawa, but a second dispute panel ruled in a split decision in 2023 that the new allocation method was USMCA compatible.
When the World Trade Organization dispute panels issue a ruling, they make recommendations on how a country can become WTO compliant, Nicholas Paster, former assistant general counsel in the Office of the U.S. Trade Representative, said during the panel. The USMCA dispute panels offer no such recommendations.
“There's not an evaluation of whether the new measure in place conforms with the rest of the agreement,” Paster, who is now an associate at law firm King & Spalding, said. “And so, you could find yourself in this cycle of winning a case and then needing to bring another case to basically address the same issue.”
“You've seen that in the agriculture space,” Morris stressed.
The U.S. is not the only country to complain about Canada’s administration of its dairy TRQs. New Zealand initiated a similar case over Ottawa’s administration of its quotas through its own multilateral trade agreement with the country – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
In that case, the CPTPP’s dispute resolution panel also found that Canada’s TRQ allocations violated the terms of the deal.
The TRQs are also not the only grievance that the U.S. dairy sector wants to see addressed as part of the USMCA review process. Industry groups from the U.S., Australia and New Zealand last month accused Canada of dumping dairy protein products below fair market prices in their market.
The groups contend that Canada’s supply management system incentivizes Canadian producers to dump surplus products generated under the country's supply management system onto world markets.
“That's another piece that we see as ripe for tackling in the review to get that back in line with what the negotiators sought out,” Morris said.
Whether negotiators come to any kind of agreement on how to adapt or extend USMCA in 2026, however, is an open question. Multiple participants in Friday’s panel doubted negotiators would opt to extend the agreement just six years into its 16-year term.
“The chances of the parties agreeing to extend it for another 16 years in 2026 are quite low,” said Eric Gottwald, a trade specialist at the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). Gottwald argued there are simply “too many pain points.”
If the parties don’t extend the agreement, they will meet every year for the remaining 10 years of the agreement to undertake a joint review and consider its extension for another 16 years.
“It's going to be a very bumpy ride over the next three to four years,” he added.
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