Question Period Note: CPTPP AND CUSMA DAIRY TARIFF RATE QUOTAS DISPUTES

Q1– What is the ruling of the CPTPP Panel? Q2 - How does the Government intend to address the Panel reports for both disputes?

R1 - Canada is very pleased with the overall findings of the Panel’s report, which recognized that Canada has a margin of discretion in setting its TRQ allocation policies, including determining who is eligible to obtain an allocation.
The panel’s findings on the use of pools will not undermine Canada’s supply management system. R2 - The CPTPP and CUSMA are separate and distinct agreements and the panel processes are unfolding independently.

The Panel’s final report in the CUSMA dairy TRQs dispute is expected in November.

We will continue to work closely with the dairy sector representatives and provincial officials as we proceed with next steps in the process, including seeking their views on next steps.

CPTPP Dairy TRQs Dispute

On May 12, 2022, New Zealand requested consultations under the Dispute Settlement chapter of the CPTPP regarding Canada’s administration of its CPTPP dairy Tariff Rate Quotas (TRQs). Canada hosted New Zealand for in-person consultations on June 22, 2022, New Zealand requested the establishment of a dispute settlement panel on November 7, 2022, and the hearing took place in Ottawa on June 14-15, 2023.
The final Panel report was released to the disputing Parties on September 5, 2023. The CPTPP Panel found against Canada on 2 of the 6 claims. The Panel ruled that Canada is in violation of its obligation to allow importers “the opportunity to utilize TRQ quantities fully”, and that Canada’s pools that reserve access to a percentage of each TRQ for dairy processors violate Canada’s obligation to ensure that it does not “limit access to an allocation to processors”. Also, the majority of the Panel (2 of the 3 panelists) found 2 claims in Canada’s favour: that Canada’s exclusion of retailers from TRQ eligibility does not breach the CPTPP agreement; and that Canada’s measures do not introduce a “new or additional condition, limit or eligibility requirement on the utilization of the TRQ for the importation of a good”. In light of its findings on other provisions, the panel deemed unnecessary to make findings on the remaining 2 claims made by New Zealand: procedures for administering TRQs are fair and equitable; and allocating, to the maximum extent possible, in the amount importers request.
CUSMA Dairy TRQs Disputes
On May 25, 2021, USTR Tai requested the establishment of a dispute settlement panel. The request noted that Canada’s dairy TRQ allocation measures appeared to be inconsistent with several provisions of the Canada-United States-Mexico Agreement (CUSMA). On December 20, 2021, the Panel delivered its final report to the Parties. It found that Canada’s practice of reserving TRQ pools exclusively for the use of processors (including further processors) is inconsistent with CUSMA. The Panel made no findings on the three other claims brought by the U.S., as the Panel considered it was unnecessary to resolve the dispute.
To comply with the Panel’s findings, Global Affairs Canada (GAC) held a public consultation from March 2, 2022 to April 19, 2022 and published new dairy TRQ policies on May 16, 2022. The new policies ended the practice of reserving TRQ pools exclusively for processors and, instead, allocate to distributors, processors and/or further processors based on market share. These policies generated significant negative reaction from U.S. industry, U.S. Congress and USTR, who expected more or different reforms to Canada’s administration of its CUSMA dairy TRQs.

On May 25, 2022, the United States formally requested consultations under the Dispute Settlement Chapter of the CUSMA regarding Canada’s administration of its dairy tariff rate quotas, including the revised allocation policies implementing the panel report from the first CUSMA Dairy dispute. In this consultations request, the U.S. identified several elements of Canada’s TRQ allocation measures as being inconsistent with CUSMA provisions, namely the ineligibility of retailers and food service operators for allocations under the TRQs, Canada’s activity requirements for an applicant to be eligible, and the partial allocation approach for the 2022 calendar year CUSMA dairy TRQs. Canada initially allocated the 2022 CUSMA dairy calendar year TRQs in tranches due to the discriminatory electric vehicle (EV) tax credits that were included in the Build Back Better Act adopted by the U.S. House of Representatives, which threatened the viability of the automotive sector in Canada. On June 9, the U.S. and Canada engaged in virtual consultations. On August 16, President Biden signed into law the Inflation Reduction Act, which replaced the EV tax credits with a “Clean Vehicle Credit” (CVC) that does not discriminate against Canada. Consequently, GAC issued the remaining volume of the 2022 CUSMA dairy calendar year TRQs on August 24.
On December 20, 2022, the U.S. again requested dispute settlement consultations under CUSMA. This new request added two new overarching claims of violation under several CUSMA provisions to the previous consultation request of May 2022, and dropped the claim regarding the partial allocation of the 2022 CUSMA dairy calendar year TRQs. On January 31, 2023, the United States requested the establishment of a new CUSMA dispute settlement panel on Canada’s dairy TRQ policies. In this request, the United States made 4 overarching claims of violation under several CUSMA provisions, including the ineligibility of retailers and food service operators under the TRQs, the 12-month activity requirement, Canada’s methodology for calculating TRQ allocations through market share, and TRQ return and re-allocation policies. The request for a panel by the U.S. follows dispute settlement consultations that took place on January 17, 2023.
On July 19 and 20, 2023, Canada and the United States participated in the oral hearing for the second CUSMA dairy TRQs dispute in Ottawa. The Panel is expected to issue its final report by November 10, 2023 and it should be made public soon after.

• Canada takes its trade commitments seriously.
• The Government defended supply management during the negotiations of these agreements and through the first CUSMA dairy TRQ dispute.
• We always stand up for the Canadian dairy industry and the farmers, workers and the communities it supports, and it will continue to do so in any dispute process.
• We have engaged with dairy sector representatives and with provinces and territories to ensure the best defense of Canada’s interests, and will continue to do so.