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

Q1– What is the ruling of the CPTPP Panel? Q2 – How is Canada responding to the next steps from New Zealand on dairy TRQs? Q3– What is the ruling of the second CUSMA Panel? Q4-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 Tariff Rate Quotas (TRQs) allocation policies, including determining who is eligible to obtain an allocation.
In May 2024, Canada published new CPTPP dairy TRQ allocation and administration policies, which include the removal of the pooling system and some administration changes.
With these new policies, Canada considers it has eliminated the non-conformities identified by the Panel. R.2 - Canada is disappointed that New Zealand has decided to escalate the issue under the Agreement.
We are confident that the new policies fulfill Canada’s obligation to eliminate the non-conformity identified by the Panel.
While New Zealand may not agree, Canada will vigorously defend our implementation plan and supply management system. R.3 - 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.4 - The U.S. Administration, members of Congress and the dairy industry expressed disappointment with the second CUSMA dairy dispute findings.
For CUSMA disputes, there is no appeal process.
Canada is confident that our practices align with our obligations under CUSMA.

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 of the new policies began on August 1, 2024, marking the start of the 2024-2025 dairy year. 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 reactions 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 it 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.

Detail on New Zealand’s request for negotiations and next steps:

Pursuant to Article 28.20(1)(b) of the CPTPP, on October 17, 2024, New Zealand officially took the next step in the dispute by requesting that Canada enters into negotiations with a view to developing mutually acceptable compensation. New Zealand considers that Canada’s new policies that were implemented on August 1, 2024, have not eliminated the non-conformity determined by the Panel.
In New Zealand’s view, Canada’s administration and allocation of its TRQs continues to be in non-conformity with Canada’s obligations (1) to ensure that it does not ‘’limit access to an allocation to processors” and (2) that Canada does not “administer its TRQs in a manner that allows importers the opportunity to utilise TRQ quantities fully”.

Within 15 days of New Zealand’s request (i.e. by November 1, 2024), the Parties must enter into negotiations. If no agreement on compensation is reached within 30 days after discussions begin, New Zealand may then provide written notice of its intent to suspend benefits. To block the suspension of benefits by New Zealand, Canada would then have 30 days to ask the Panel to reconvene to first determine whether Canada has eliminated the non-conformity and whether New Zealand’s proposed level of suspended benefits is “manifestly excessive”.

Officials continue to work with the GAC and Justice Canada Trade Law Bureau (JLT), AAFC, and an expert economist in preparation for next steps in Canada’s defense.

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.
 

• 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 disputes.

• We always stand up for the Canadian dairy industry, 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.