U.S. challenges Canada's dairy tariff-rate quotas

WASHINGTON (Reuters) -The United States said on Wednesday it was challenging Canada’s allocation of dairy tariff-rate quotas in the U.S.-Mexico-Canada Agreement (USMCA) dispute settlement system, marking the first enforcement action under the 5-month-old trade pact.

“Canada’s measures violate its commitments and harm U.S dairy farmers and producers,” U.S. Trade Representative Robert Lighthizer said in a statement.

If the United States and Canada are not able to resolve Washington’s concerns through consultations, the United States may request the establishment of a USMCA dispute settlement panel on the issue, the USTR said.

“We are disappointed that Canada’s policies have made this first ever enforcement action under the USMCA necessary to ensure compliance with the agreement,” Lighthizer said.

In Ottawa, Canadian International Trade Minister Mary Ng told reporters that “I’m very confident that Canada is meeting its obligations under the USMCA”.

Canada’s entrenched “supply management” system of steep tariffs, quotas and price supports for its dairy sector was a point of contention for Lighthizer during more than two years of negotiations to revamp the 1994 North American Free Trade Agreement.

As part of the USMCA deal, Canada agreed to provide U.S. dairy farmers access to about 3.5% of the $16 billion a year market allowing for increased exports of some products like skim milk and milk proteins to Canada. The deal keeps supply management largely intact.

USTR said Canada has the right under USMCA to maintain tariff rate quotas (TRQs), which impose tariffs on imports above certain volumes, on 14 dairy products from ice cream to cheese. But USTR said that Canada in October published notices reserves a percentage of the quotas for processors and “further processors” which it says limits U.S. access and violates USMCA commitments.

USTR’s move won support from top trade lawmakers in Congress, including both Democrats and Republicans.

Representative Kevin Brady, the top Republican on the tax- and trade-focus House Ways and Means Committee, said Lighthizer “is right to use our powerful new dispute settlement system in USMCA to challenge Canada’s discrimination against American dairy products.

Representative Richard Neal, the panel’s Democratic chairman concurred, adding that he looked forward to future USTR enforcement actions against Mexico “that will effectively support Mexico’s labor reform and address longstanding and persistent labor violations in Mexico.”

Additional reporting by David Lawder in Washington and David Ljunggren in Ottawa; editing by Jonathan Oatis and Grant McCool