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The United States is establishing a dispute settlement panel under the US-Mexico-Canada Agreement (USMCA) regarding Canada’s dairy tariff-rate quota (TRQ) allocation measures, US Trade Representative Katherine Tai announced Tuesday.

In this new dispute panel proceeding, the US is challenging Canada’s revised dairy TRQ allocation measures that use a market-share approach for determining TRQ allocations and impose new conditions effectively prohibiting retailers, foodservice operators, and other types of importers from utilizing TRQ allocations.

The US had, in December 2022, requested consultations with Canada under the USMCA regarding Canada’s dairy TRQ allocation measures.

The US and Canada held consultations last month, but those consulutations failed to resolve the matter, according to the Office of the US Trade Representative (USTR).

Under the USMCA’s revised dispute settlement procedures, the dispute settlement panel is established upon delivery of the request, and the US has provided to Canada written notice of its request to establish a panel.

Under the timeline provided in the USMCA, the dispute settlement panel is expected to issue a report later this year.

The written notice lists four complaints about Canada’s dairy TRQ policies.

First, Canada’s dairy TRQs set limits on the quantity of certain types of dairy products that may be imported at a lower (within access) rate of duty. Through its dairy TRQ allocation measures, Canada denies access to TRQ allocations to all types of importers except for processors, distributors, and in some cases, further processors.

Canada has determined that other types of importers, including retailers and foodservice operators, are not eligible to apply for a TRQ allocation, according to the US.

Second, through its dairy TRQ allocation measures, Canada allocates its dairy TRQs based on a calculation of an applicant’s product-specific market share during a 12-month reference period. The methodology for calculating market share differs depending on the type of applicant, whether processor, distributor, or further processor, and Canada’s methodology advantages processors over other applicants, according to the US.

Third, Canada’s dairy TRQ allocation measures establish a 12-month reference period that is used to calculate market activity for the purpose of determining market share, and the measures require that applicants must be active during all 12 months of the reference period to be eligible to apply for a TRQ allocation.

Canada’s measures also require that TRQ allocation recipients must remain active during all 12 months of the quota year, the US noted.

And fourth, Canada’s dairy TRQ allocation measures provide that unused allocations of TRQ

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