For the first time under the North American trade agreement, the United States is initiating a legal proceeding against neighboring Canada. Washington wants the USMCA (often referred to as the ‘new NAFTA’) to convene the dispute resolution panel.
The U.S. believes Canada is unjustly maintaining the controversial Canadian system of milk and dairy pricing.
Import tariffs and quotas on dairy products have been a problem between the two countries for many years. Canada controls dairy production through supply management – a complex system of production controls and tariffs designed to keep domestic prices stable.
The USMCA agreement does grant American dairy processors slightly increased volume access, but because the Canadian pricing system remains in place, it has little effect.
Dairy imports like American cheese and milk are subject to a 300% tariff. Canada is willing to allow more import volume at lower financial tariffs. U.S. Trade Representative Tai says that Canada still uses its complex system of licenses and tariffs to favor Canadian producers.
After four tumultuous years of American trade policy under former President Donald Trump, many Canadians had hoped for improved relations under Joe Biden. Trump had imposed higher tariffs on Canadian steel and aluminum and had threatened tariffs on the automobile sector.
In recent weeks, Canadian officials have faced growing tensions with the U.S. under Biden. The lumber export issue has also flared up again. Washington says it will double tariffs on softwood imports, the latest development in a dispute that has lasted nearly four decades.
Canadian Prime Minister Trudeau downplayed the dairy tensions, saying there will "always be issues on which Canada and the U.S. disagree."