OMAHA (DTN) -- U.S. dairy access to Canada under the United States-Mexico-Canada Agreement has been limited under a ruling handed down by a dispute-settlement panel concluding Canada's latest tariff-rate quota moves do not violate its obligations under the USMCA.

The newest dispute ruling is the latest salvo in the cross-border maneuvers by Canada that have limited U.S. dairy exports as Canadian officials continue finding new ways to protect their supply-management system in the dairy industry.

Friday's ruling comes after a January 2022 ruling in the United States' favor against Canada over claims Canada had improperly restricted its market to U.S. dairy products. Canada adjusted some of its dairy tariff rate quota (TRQ) rules, which the U.S. dairy industry and the Biden administration maintained still fell short of Canada's market obligations under the USMCA. The latest dispute panel ruled Canada's changes "are not inconsistent" with the dairy provisions of the trade deal.

Canada had promised U.S. dairy farmers access to roughly 3.5% of the Canadian market. The U.S. then challenged Canada after the Canadians set up a system that split up the lion's share of tariff rate quotas (TRQs) among Canadian processors that U.S. companies say restricted their access to the market. After the 2022 ruling, Canada made some minor adjustments that U.S. officials and the U.S. dairy industry maintain still limit U.S. access. The latest dispute ruling sided with Canada.

Since 2020 when the USMCA was signed, U.S. dairy exports to Canada have risen, reaching $1 billion in value in 2022. Through the first nine months of 2023, the U.S. has exported nearly $818 million in dairy products to Canada, up about 4.8% compared to the first nine months of 2022.

FEEDBACK TO RULING

The National Milk Producers Federation and U.S. Dairy Export Council issued a joint statement criticizing the dispute-panel's ruling.

"It is profoundly disappointing that the dispute settlement panel has ruled in favor of obstruction of trade rather than trade facilitation," said Jim Mulhern, president and CEO of NMPF.

Krysta Harden, president and CEO of the U.S. Dairy Export Council, said, "By allowing Canada to ignore its USMCA obligations, this ruling has unfortunately set a dangerous and damaging precedent."

Canadian officials declared a victory on Friday, saying it was good for the country's dairy industry and supply management system.

"Canada is very pleased with the dispute settlement panel's findings, with all outcomes clearly in favor of Canada," said Mary Ng, Canada's International Trade minister. She added, "This is good news for Canada's dairy industry and our system of supply management."

Ng also noted, "The government of Canada will also continue to work with processors and retailers to stabilize food prices."

Katherine Tai, the U.S. Trade Representative, said she was "very disappointed" in Friday's decision. The U.S. continues to have issues with how Canada is implementing its market access for dairy under the USMCA, she said.

"While the United States won a previous USMCA dispute on Canada's dairy TRQ allocation measures, Canada's revised policies have still not fixed the problem for U.S dairy farmers," Tai said. She added, "We will continue to work to address this issue with Canada, and we will not hesitate to use all available tools to enforce our trade agreements and ensure that U.S. workers, farmers, manufacturers and exporters receive the full benefits of the USMCA."

Rep. Glenn "GT" Thompson, R-Pa., and Rep. David Scott, D-Ga., the chairman and ranking member of the House Agriculture Committee, issued a joint statement opposing the outcome of the panel dispute.

"We are disappointed in today's announcement and the decision of the dispute panel. It is critical the U.S. encourage and enforce USMCA, and this decision allows Canada to continue their questionable protectionist practices that disallow fair access to Canadian markets. We appreciate Ambassador Tai and the Biden Administration's continued pursuit to ensure fair market access for U.S. dairy producers."

The full ruling can be read here: https://ustr.gov/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

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