Tariff-rate quota

So we negotiated, Lighthizer and STR negotiated the USMCA, but we've never really received the market access that was supposed to happen under the USMCA.

They have done things with the tariff rate quotas, the TRQ administration, that's basically prohibited us from getting in consumer goods to the Canadian consumer.

Most of our exports to Canada are export, they process it further in Canada and then re-export it, a lot of times back to the US.

So that's why Canada is our number two market, not because we're sending finished goods there and putting them on shelves for consumers to purchase, The other issue we had there is since they balance your milk supply for fluid milk and cream, they have significant amount of solid nonfat protein coming out the back of that system.

So we have two issues.

If we step back from that and think about it in broad strokes, Jeff, we have two issues.

We have a TRQ administration issue that prohibits us from the market access to consumer goods that we want to get into Canada, that we're supposed to get into Canada.

And we have an issue with their protein pricing cross-subsidization inside Canada, the way they price their proteins.

All right.

So you know what TRQs are, right? no so trqs are the things that we have they're quantitative quotas that allow for like sugar to come over only in certain amounts that there's a quota for importation right

right

and those trqs are controlled by ofac and and they have different standards they have for different countries so sugar comes out of like four main places ones like canada sugar out of sedan a basically a cutout like you're in normandy It's a cutout, right? So it's sovereign to everything else around it, including sanctions.

So we are asking for relief from USTR, the United States Trade Representative.

We're asking them to enforce the situation with a TRQ, which is a tariff ratio quota system.

This would really be helpful for growers because this mechanism would would dictate how much volume you can bring in.

And should you exceed that volume, this would be the applied tariff rate for anything that goes, anything that surpasses the quota that's been stated in this rule.

So we are hoping for some sort of relief here with respect to Argentina and hope that it's a TRQ system.

Makes great sense right there.

This is how you can be competitive in the rest of the world.

Canada does not pay U.S. farmers directly for milk in the way they buy or sell for goods.

Instead, U.S. dairy exports to Canada are governed by tariff rate quotas, or TRQs, under the U.S.-Mexico-Canada agreement, the USMCA, which sets limits on how much milk can be imported duty-free each year.

All right, so how does the system work? They have a quota, like for milk, okay? They have a quota.

U.S. milk can enter Canada at low to zero tariffs.

Um, you know, ba-based on the work that I do, I, I think this would be costly for the Canadian, uh, dairy industry, you know, from, from a couple of different perspectives.

You know, fi-first of all, the, the TRQs for dairy products that are in demand in Canada, which are cheese, butter, cream, et cetera, they're already filled.

So when they're already filled, well, you know, who, who, you know, why, why care about the TRQ administration? I think the reason to care is that the, the US interest is to export to Canada as high a valued product as possible, and I think they thought that if they could get more influence over that by allocation to retailers, that that would, that would benefit, uh, them.

Well, if you, if you have, um, more of the, again, the, the volume can't change, it's filled, but if it's oriented more towards premium products, presumably that, that presents a prospect that some of the Canadian premium dairy products will be chased out of that space, which is a loss to Canadian, um, uh, dairy processors.

But it was because they weren't able to resolve these issues through the dispute settlement mechanism that they were looking for these other changes at, at the end of the day, right?

Well, one, one of the concerns that, uh, that, that I think comes up here is w- specifically with the Section Three Thirty-Eight tariffs.

You know, the, the, the president said, "Well, you know, look, you're gonna, you know, basically you're gonna allocate the TRQs to our satisfaction or else." You know, but, but, but wait a minute.

You know, the dispute resolution mechanism within the CUSMA agreement, which was, you know, as I think everybody knows, that was negotiated under the first Trump administration, at the time was the, the best trade, uh, trade deal ever negotiated.

Section 404 of the Uruguay Round Agreements Act, U.R.A.A., Public Law 103-465, 108 Stat, 4809, 4959-61.

19 U.S.C. 3601 authorizes the President, in certain circumstances, to modify TRQs on certain agricultural products.

In particular, Section 404 of the U.R.A.A., 19 U.S.C. 3601 , provides that when imports of an agricultural product are subject to a TRQ and where the President determines and proclaims that the supply of the same or directly competitive or substitutable agricultural product will be inadequate because of a natural disaster, disease, or major national market disruption to meet domestic demand at reasonable prices, the President may temporarily increase the quantity of imports of the agricultural product that is subject to the in-quota rate of duty established under the TRQ.

Further, Section 404 of the URAA provides that in implementing applicable TRQs, the President must take such action as may be necessary to ensure that imports of agricultural products do not disrupt the orderly marketing of commodities in the United States.

In addition, Section 404 of the URAA provides that the President may allocate the in-quota quantity of a TRQ for any agricultural product among supplying countries or customs areas and may modify any allocation as determined appropriate by the President.

9.

We also have a key priority that's not the focus of current discussions, but also relates to USMCA follow through, and that's Canada's increasing use of loopholes to keep ratcheting out ever-increasing amounts of low-priced Canadian dairy protein products into the US and other markets.

For right now, though, the current talks have been very much focused on those TRQ issues, given the authority the administration called upon in order to levy the tariffs that we have now in place.

And as I understand it, this has been an issue really since the onset of USMCA and maybe even more so back to the original NAFTA agreement and things of that nature.

This is not something that just happened overnight when it comes to dairy relations between the two countries, right, Shawna?

That's their own internal domestic policy decisions.

What we're focused on is that clearly you can see from the fill rate drops here.

So for instance, since the agreement was implemented, if we take a look at yogurt through the end of last year, we've only seen 20% of that cumulative TRQ filled in terms of the quantities.

Ice cream's been less than half over that period.