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

Q1– What is the ruling of the CPTPP Panel? Q2 - How did the Government address the Panel report for the CPTPP dispute? Q3-What are the next steps in the CPTPP dispute process? Q4– What is the ruling of the second CUSMA Panel? Q5-What are the expected next steps from the United States on the issue of dairy?

R.1 - 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. R.2 - The Panel found that Canada has a margin of discretion in setting TRQ allocation policies, including determining who is eligible to obtain an allocation.

The Government worked closely with the dairy sector to implement the Panel’s report. Following broad public consultations on proposed policy changes, Canada published new CPTPP dairy TRQ allocation and administration policies on May 1, 2024

Canada’s system of supply management was not an issue in the dispute. R.3 - With the implementation of new CPTPP dairy TRQ policies on August 1, 2024, Canada considers it will have eliminated the non-conformities identified by the CPTPP panel. R.4 - The Panel ruled in Canada’s favour on all claims made by the United States.
Based on the Panel’s conclusion, Canada is not required to make any changes to its CUSMA dairy TRQ allocation measures. R.5 - For CUSMA disputes there is no appeal process.
The US administration has not indicated its next steps.

CPTPP Dairy TRQs Dispute
The final Panel report in the dispute brought by New Zealand against Canada regarding the administration of Canadian dairy tariff rate quotas (TRQs) was made public on September 5, 2023.
To implement the Panel’s findings, Global Affairs Canada held public consultations from February 6 to March 7, 2024, and published new CPTPP dairy TRQ policies on May 1, 2024. The implementation will begin with the 2024-2025 dairy year which opens on August 1, 2024. These new policies include the removal of the pooling system (as was done for implementation following the first CUSMA dairy TRQs dispute), and some administration changes.
These new policies generated significant negative reaction from New Zealand’s government and industry. New Zealand considers that the new policies continue to allocate the majority of TRQs to processors via a market share approach and remain unsatisfied that the policies exclude retailers from eligibility.
Detail on the Panel’s findings:
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 falls within Canada’s discretion; 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 on: whether Canada’s procedures for administering TRQs are fair and equitable, and whether Canada ensures that each allocation is made, to the maximum extent possible, in the amount importers request.

CUSMA Dairy TRQs Disputes
First CUSMA Dairy TRQ Dispute: On January 4, 2022, the Panel report was made public. The Panel 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) published new CUSMA dairy TRQ policies on May 16, 2022, following public consultations. 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 U.S. Government, who expected more or different reforms to Canada’s administration of its CUSMA dairy TRQs. Second CUSMA Dairy TRQ Dispute:
On January 31, 2023, the U.S. requested the establishment of a second dispute settlement panel on Canada’s dairy TRQ policies under CUSMA. 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 final Panel report was made public on November 24, 2023 and ruled in Canada’s favour on all claims. This outcome will have no impact on Canada’s CUSMA dairy TRQ administration. Based on the Panel’s conclusion, Canada is not required to make any changes to its CUSMA dairy TRQ allocation measures. There is no appeal mechanism under CUSMA.
The U.S. Administration, members of Congress and the dairy industry expressed disappointment with the second CUSMA dairy dispute ruling. While their next steps are unclear, it is expected that the U.S. Administration will continue to press its concerns related to Canada’s dairy policies, including TRQs administration, and explore all avenues to address their concerns.

• Canada takes its trade commitments seriously.
• The Government defended supply management during the negotiations of these agreements and through all three dairy Tariff Rate Quota (TRQ) disputes.
• We always stand up for the Canadian dairy industry and the farmers, workers and the communities it supports, and we will continue to do so.
• We will continue to engage with dairy sector representatives and with provinces and territories to ensure the best defense of Canada’s interests.