Cornell Study - USMCA Enhances Dairy Trade with Canada

By Blake Jackson

Cornell University study reveals that the USMCA has facilitated increased U.S. dairy exports to Canada, despite ongoing disputes. Research by Christopher Wolf and K. Aleks Schaefer, published in Food Policy, indicates that the USMCA's dispute resolution mechanism has been effective in addressing trade barriers.  

Historically, Canada maintained high tariffs on dairy products under NAFTA, protecting its domestic dairy supply. The USMCA, implemented in 2020, opened limited access to Canadian dairy markets, but the U.S. argued that the allocation was unfairly restrictive.

A USMCA dispute panel ruled in 2022 that Canada had improperly limited access for U.S. dairy. While Canada made adjustments, a second U.S. challenge was denied in 2023.  

Despite congressional concerns about Canada's "unwillingness to provide fair market access," the Cornell research found that Canadian concessions under the USMCA represented significant trade liberalization compared to pre-USMCA levels. "Forty-three percent of U.S. dairy exports, by value, go to Canada or Mexico," Wolf said, highlighting the importance of these markets.

The USMCA established tariff rate quotas (TRQs) for 14 categories of U.S. dairy products, allowing limited imports at low tariffs before higher tariffs apply. These tariffs, such as 298% for butter, effectively limit imports.

Wolf and Schaefer examined the impact of regional trade agreements on agricultural trade, finding that the USMCA's dispute settlement mechanism is more effective than NAFTA's. "I’ve always been fascinated that Canada has this massive amount of protection, and I’ve done research on the changing structures of dairy industries," Wolf noted.

While the USMCA granted U.S. dairy farmers access to a small portion of the Canadian market, the U.S. dairy industry has remained vocal. The research also highlighted that even with TRQs, additional quota administration requirements act as trade barriers.

"We show that quota administration requirements represent additional constraints on trade that are “binding” beyond the volumetric restrictions," Wolf explained. This nuance is crucial for understanding the trade dispute and its economic consequences.

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