Farmers Keeping an Eye on First USMCA Challenge

The Office of the U.S. Trade Representative launched an enforcement action against Canada in December, and farmers and agricultural organizations are eagerly waiting to see how the disagreement unfolds under the new Biden administration.

“This is the first test of the new U.S.-Mexico-Canada trade agreement, and we will be watching it closely for how each side handles the dispute and what possible impacts will trickle down to producers,” said Ben Rowe, national affairs coordinator for Virginia Farm Bureau Federation.

Former USTR Robert Lighthizer brought the enforcement action against Canada, challenging its allocation of negotiated dairy tariff-rate quotas for dairy products. Under the USMCA agreement, Canada can impose TRQs at specific thresholds, setting limits on the quantity of certain dairy products that can be imported at a lower tax rate.

While the TRQs allow U.S. dairy farmers more access to the Canadian market, the USTR claims Canada is reserving a percentage of the TRQs for processors and “further processors”—unfairly protecting Canadian firms and undermining the agreement.

“In effect, Canada has limited U.S. dairy exports, which will pressure U.S. farm milk prices and further delay any anticipated economic recovery within our dairy sector,” said Tony Banks, senior assistant director of agriculture, development and innovation for VFBF. “The issue affects all U.S. dairy farmers. However, the extent will vary for individual farms depending on the ultimate destination of their milk.”

Enacted in July last year, the USMCA is still in its infancy. It’s considered a boon to U.S. agriculture producers, opening markets to two of the country’s largest trading partners. Under the current agreement, U.S. dairy products have access to about 3.6% of the Canadian market.

Rowe explained the U.S. and Canada are still in the initial consultation phase of the USTR enforcement action. If a resolution cannot be reached, the USTR may request the establishment of a USMCA dispute settlement panel.

“We want to see appropriate resolution to disputes so we can maintain close agricultural trade relations with Canada,” Rowe said. “This issue was raised during the previous administration, so there have been delays due to staff turnover. President Biden has nominated Katherine Tai as USTR, and she has yet to be confirmed. Once a USTR is in place, we hope to see this issue taken up quickly.”

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