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The First Challenge to Canada’s Supply Management System under CUSMA

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Ljiljana Biuković explores the case as a test of the functioning of the improved CUSMA dispute settlement process and of Canada’s ability to protect its supply management system for dairy products from renewed pressure coming from its most important trade partner.

Image courtesy of interviewee. March 28, 2024

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This video video discusses the context of agricultural trade disputes between the United States and Canada, particularly regarding Canada's dairy supply management system under the United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA. The speaker explains that the US sought greater access to the Canadian dairy market during USMCA negotiations due to Canada's protective measures in the dairy industry, which include controlled production, pricing mechanisms, and import restrictions.

The US aim was to increase dairy product imports, claiming such access was vital for American dairy producers while highlighting the significant price differences between Canadian and American dairy products. Despite US requests, Canada maintained its supply management system, leading to a dispute where the US claimed allocation of tariff rate quotas (TRQs) favored Canadian processors over American entities.

The dispute went to arbitration, where a panel found in favor of the US regarding the exclusion of distributors and retailers from TRQ allocations. Canada subsequently adjusted its policies to allow for some distributor access but excluded retailers, which led to continued US frustration and the initiation of a second dispute under USMCA in May 2022.

The panel decisions highlighted the need for countries to adapt their trade policies in response to international arbitration outcomes, illustrating the complex dynamics of agricultural trade negotiations and compliance with trade agreements. The ongoing disputes serve as a crucial case study for how trade agreements function, their enforcement, and broader implications for future negotiations. Overall, the dairy market plays a key role in trade relations, but significant changes tend to occur only during major treaty renegotiations rather than through immediate compliance adjustments.

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Here are some articles with similar themes and topics related to agricultural trade disputes, specifically focusing on dairy trade and international agreements, like the USMCA:

1. **Title: "Understanding the USMCA: A New Era for North American Trade"**
- This article examines the USMCA and its implications for various sectors, including agriculture. It highlights changes from NAFTA and delves into how the agreement addresses trade barriers in dairy and other commodities between the U.S., Canada, and Mexico.

2. **Title: "Dairy Trade Tensions: The Impact of Supply Management Systems"**
- An analysis of the dairy supply management systems in Canada and their effects on U.S. dairy exports. This piece discusses how these policies create trade tensions and explores the negotiations surrounding tariff rate quotas.

3. **Title: "Negotiating Access: The Complex World of Agricultural Trade Disputes"**
- This article covers the multifaceted nature of agricultural trade disputes, including historical conflicts and recent developments in dairy trade specifically between the U.S. and Canada. It outlines negotiation strategies and the role of international arbitration.

4. **Title: "The Role of Arbitration in Trade Disputes: Lessons from Dairy Industry Cases"**
- Focusing on arbitration processes used in trade disputes, this article discusses case studies, including those involving U.S. claims against Canadian dairy policies. It evaluates how arbitration outcomes influence national trade strategies.

5. **Title: "Reflections on the USMCA: Can It Resolve Ongoing Dairy Disputes?"**
- An opinion piece that reflects on the effectiveness of the USMCA in alleviating tensions in the dairy market between the U.S. and Canada. It surveys potential reforms and the future of dairy trade relations.

6. **Title: "Trade Agreements and Their Impact on Agricultural Markets: A Case Study on Dairy Products"**
- This research article analyzes the broader implications of trade agreements, particularly focusing on dairy markets. It evaluates how agreements like USMCA have altered competitive dynamics and market access.

7. **Title: "Canada's Dairy Supply Management: Balancing Protection and Trade Relations"**
- An exploration of Canada's supply management system, its historical convideo, and its role in international trade relations, particularly how it has led to disputes with the U.S. and efforts to negotiate access.

These articles collectively cover the broader themes of agricultural trade disputes, international agreements, the complexities of dairy trade, and the enforcement of trade policies within the North American convideo.

X-TIMESTAMP-MAP:LOCAL=00:00:00.000,MPEGTS=900000

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Let me start giving you the context by explaining what

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coma really is, and then

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to situate it in an even broader context of global trade,

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because it is all relevant for the disputes between,

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United States and Canada with respect to Canada's,

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dairy, supply management,

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allocations, of tariffs.

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Um, so Uzma is the abbreviated name for Canada,

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United States, and Mexico.

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Preferential trade

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and investment agreement that came into force

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on July 1st, 2020,

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and it actually replaced the previously

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existing North American Free trade Agreement,

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that came into force, 20 years,

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from now, from this moment, on January, 1994.

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And Uzma was, renegotiated

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during the Trump administration,

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and, all three partners, all three states,

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wanted to make some changes to the agreement that,

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became, really inefficient

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and in, not capable to regulate,

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certain new industries

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and to reflect changes,

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within the North American market and global market.

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Um, primarily

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and relevant to this particular dispute,

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is, that the Americans wanted better access

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to the, dairy product market in Canada.

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And, it is important to situate this,

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you know, request, to the particular industry,

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and that's agricultural industry under all

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bilateral, regional and global trade.

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Three Ds, maintaining some form of protection,

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of national agricultural industries

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is allowed.

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Um, WTO, agreement on, on agriculture allows

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for that, NAFTA allowed for that.

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And what the American, party wanted

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with uzma is to actually increase,

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their access to that protected market.

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At the core of the Canadian protection

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are the rationales that everybody uses,

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and that is that, it, it is

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Incredibly important for every government to protect

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domestic agricultural market from instability,

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in global market prices.

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And the second one is that,

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agricultural industries incredibly important

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because, it is ensuring food security.

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Um, but in practice, again, we see that a lot

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of developed countries are trying

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to maintain protectionist measures,

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that they're also providing subsidies

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for their agricultural products.

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Um, so Canadian, protective,

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measures are built into Canadian dairy supply management

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system that, is built on three pillars.

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One is controlled production that would ensure

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that the quantity of, raw milk,

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that is produced in Canadian domestic market,

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really corresponds to domestic demand.

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Then the second pillar is pricing mechanism,

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and that is that, Canada is allowed to

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actually maintain high prices for raw milk

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and milk products, for domestic market.

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Um, and that is ensured by basically,

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allowing, Canadian, you know,

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board the authorities

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or milk boards to buy all the,

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raw milk, produced in Canada,

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and to then sell it at high prices to,

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milk processors.

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Um, and according to WTO rules,

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that supply management system, is allowed

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and according to nafta, it is allowed,

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and according to the United States, claims

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that were made, that, dairy supply

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and management system, is okay.

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The third pillar is at the core of a dispute to some extent,

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and that is, really controlled imports,

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of dairy products by controlling the quantity,

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that could be imported in Canada,

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and that is controlled by,

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using this, TRQ system

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or, tariff freight quotas, which,

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basically our two tier tariffs.

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Um, so at the first level, they allowed limited

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import volume,

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or quota, at the low tariff of milk products.

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And then at the second level, additional above quota

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import is subject to a higher tariff

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because of this, supply management system,

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we do have in Canada, well protected interests

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of, milk producers

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or dairy product producers, farmers

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and processors,

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and processors are those who are basically, using

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that raw milk

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and, turning it into, products, milk products

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that we are, you know, buying, as consumers

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and further processors

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that further incorporate dairy products in some other,

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you know, in some other products.

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But on the other side, Canadians as consumers are pa,

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are paying much higher prices for

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milk products in comparison.

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For example, we pay 30% higher, price for

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a gallon of fluid milk than Americans.

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Um, some, you know, milk, products,

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such as, for example, powder milk,

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or butter, are the price 200

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or 300%, you know, above the rate that,

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Americans are paying.

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So that is the background really of this dispute.

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Americans wanted, you know, to get

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through uzma renegotiations,

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and they were expecting to get, additional 3.6

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increase in their access to Canadian dairy market,

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which would be the double of the allowed import,

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under the WTO, rules.

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And that would amount to 227 million,

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US dollars extra for, you know, American,

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milk producers.

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But that's a tiny segment

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of domestic milk market in Canada, which is like 16 billion

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Canadian dollars worth market in December, 2020.

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It is really just few months

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after, SMA came into place,

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the, groups that are lobbying for,

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American milk producers were very unhappy with the outcome

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of the negotiations.

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And, in 2020, in December,

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the United States, ask for consultations

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with Canadian governments with respect to this

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TQS allocations

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and, that, ended up in,

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no solution, whatsoever.

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So, the parties proceeded,

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where the request the Americans would request for the,

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panel, establishment in May, 2020 first

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on the basis of chapter 21 of uzma.

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That is the state to state, arbitration,

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and the US claim

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was not really challenging the legitimacy of Canadian,

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dairy management supply system,

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and they were not challenging even the fact that the

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tqs are distributed primarily to Canadians.

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The claim was really about, the practice

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of allocating those tqs only to

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Canadian processors and further processors.

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What that really means in simple terms is

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that the Americans would be really,

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selling the cheapest

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or exporting the cheapest products to Canadian counterparts,

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and they would be using that milk

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to create the additional revenue.

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Um, and the claim was if the allocation to

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of the RQs would be broadened to include distributors,

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and those are, you know, the companies that are purchasing

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and reselling dairy products to third parties,

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or if it would include retailers that are, you know,

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selling it to the grocery industry, to supermarkets,

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to grocery stores, warehouse clubs, you know, in Canada,

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then the American producers would be able to get

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that, you know, additional revenue

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or economic rent as the economist would say.

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So that was at the core of a dispute, that,

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the Canada is violating chapter three

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of uzma obligations

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because it is limiting the allocation of

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tqs to particular actors in their industry,

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and it's not distributing it to others.

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So, in a way,

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Canada, tried to justify its allocations

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and saying that basically it is not violations

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of the provisions of the, of the,

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cosma agreement.

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And without going really into a fine details

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of every single technical provision, I think that

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what really matters is the outcome.

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And it is quite interesting.

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The outcome was, to some extent,

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beneficial to Canada

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because it could actually keep the supply management system

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and the allocation, to some extent, unchanged,

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but it was beneficial to Americans

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because the panel was basically finding that, yes,

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distributors and, you know, retailers were cut out

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of the system and Canada should make these changes.

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It is important to know that once the panel makes,

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publishes the report,

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and that really, I mean, they made a decision, I think,

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in December, 2021,

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and then they, published the report

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for the public early in 2022.

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Um, so if I may say a few words

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how Canada responded now to, to those claims,

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I would certainly say that Canada,

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was happy with the, with the decision

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and they conducted, broad consultations

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with all the actors that are, affected by,

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by potential changes, to the allocation.

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And they did actually make changes

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to allow for distributors

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to also receive, some tqs,

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but not to re retain, retailers.

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Um, now Americans were not happy with this.

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Um, and,

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and so interesting thing is that,

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there is no appeal to this panel decision.

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So, the dairy lobby in the United States

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sought from the government in Washington to,

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perhaps put some retaliatory measures, against Canada

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because they found that, again, the changes

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that were made, and not only to exclude the retailers,

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but also there were some other additional conditions

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that were put on.

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Um, you know, the other actors, distributors that were,

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that were getting tqs,

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are still really violating, uzma.

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So what happened next is that basically Canadians launched,

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sorry, the Americans launched the second dispute

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under uzma, and,

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that's happened, in May, 2022.

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And, the new panel was established

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and the new panel had to deal with

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four different claims by, the United States.

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Um, and, majority of the panel two panelists found,

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against those claims.

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And one dissenting panelists, found, that,

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Canada actually, has,

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been still violating, uzma provisions.

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But, again, Canada was very happy

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with the decision, that was the vindication of their,

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positions

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and, you know, tweaking their,

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supply management system

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and their measures, as the dispute,

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as the first dispute has required.

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Um, it might be interesting to know,

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that similar provisions, with respect to,

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dairy industry that we see in Uzma have previously been

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negotiated under, C-P-T-P-P, comprehensive

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and progressive agreement for transpacific partnership.

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Again, I think it's interesting to know that these,

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those provisions were actually included in a draft

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of C-P-T-P-P because of the United States,

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and, their position United States ended up later pulling

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out of C-P-T-P-P,

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but, the provisions were such that it enabled,

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New Zealand to launch the claim.

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And the C-P-T-P-P also similarly challenging, Canadian,

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dairy, industry, tqs, allocation

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and, and, New Zealand lost

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that dispute or Canada won.

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I think that, many international,

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trade scholars, lawyers

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or political scientists of economists would say that,

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governments are responding, to decisions

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of international tribunals, when they're found

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to be in breach of certain international trade rules by,

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tweaking their, policies,

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and laws that are found to be in violation

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of international trade rules rather than doing substantive

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changes for at least three reasons.

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Um, one reason would be that, the nature,

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the mere nature of the,

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international trade treaties is such,

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and especially in certain with respect to certain,

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significant or strategic industries,

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or that they, give significant,

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significant deference to, national governments,

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to regulate, these industries.

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So the rules are such that provide enough flexibility

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for the governments to respond.

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So that's the first thing.

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And agriculture is certainly, one of those industries

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where we see that negotiations of new rules

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are extremely difficult

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and, they have to be, you know, flexible enough

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so that the countries can actually cooperate

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and accept those rules.

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So that's the first one related to the nature

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of the trade treaties.

18:32.865 --> 18:37.245
The second one is really related to, the,

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power of dispute settlement bodies, in international,

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trade, and international law in general.

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Um, those, those,

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dispute settlement bodies are very important

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and their findings and reports are very important

18:55.685 --> 19:00.285
because they are able to actually find exact points

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of violation of treaties

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and they would recommend, changes of the,

19:06.955 --> 19:11.125
related policies, national policies and, and rules

19:11.985 --> 19:15.485
and, in accordance with that.

19:15.485 --> 19:19.605
International treaties would allow, countries,

19:19.795 --> 19:22.325
that are heard by those violations

19:22.945 --> 19:26.925
to exercise some other treat D rights, such as the rights

19:27.105 --> 19:30.165
to maybe withdraw concessions,

19:30.515 --> 19:34.525
that I have given the country that is violating treaty

19:34.525 --> 19:36.405
or to impose retaliatory measures.

19:36.865 --> 19:39.285
But my point really is that those

19:39.835 --> 19:42.485
tribunals do not have the enforcement powers

19:42.485 --> 19:44.165
that domestic courts do have.

19:45.025 --> 19:49.245
So, the country still, again, have the possibilities,

19:50.305 --> 19:53.885
to, really

19:54.825 --> 19:59.565
use those findings rather as the points

19:59.785 --> 20:03.295
of pressure for the violators

20:04.075 --> 20:08.695
and to try to actually corral them into another form of,

20:09.075 --> 20:10.415
cooperation

20:10.875 --> 20:14.495
and, you know, trying to actually persuade them

20:14.495 --> 20:15.975
to change their policies.

20:16.155 --> 20:18.375
And that could be done again, either

20:18.375 --> 20:21.135
through imposing some retaliatory measures

20:21.195 --> 20:24.415
or maybe opening a new round of negotiations.

20:24.995 --> 20:29.855
Um, with respect to compliance procedures, so basically,

20:29.885 --> 20:33.135
most of the countries most of the time comply with most

20:33.135 --> 20:34.175
of the laws, but

20:34.285 --> 20:37.695
that compliance is usually not a hundred percent compliance.

20:37.835 --> 20:41.095
It is the performance of the 3D you know, rules,

20:41.915 --> 20:45.655
but, we find that compliance is insured

20:45.915 --> 20:50.365
by countries actually exercising their right to go,

20:50.865 --> 20:54.165
and use the dispute settlement process,

20:54.195 --> 20:56.885
that the treaties allow them to, to use.

20:57.665 --> 21:01.165
Um, and the thirdly, I think that,

21:01.465 --> 21:05.485
we talk more about tweaking than really fully complying is

21:05.485 --> 21:07.325
that, many

21:07.965 --> 21:10.845
countries like Canada developed countries do have

21:11.075 --> 21:12.445
institutional knowledge

21:12.445 --> 21:16.685
and capacity to always choose,

21:16.985 --> 21:19.725
the way of, you know,

21:20.365 --> 21:23.565
changing their policies in a way that is the, the least

21:24.405 --> 21:26.285
damaging to their own industries.

21:27.025 --> 21:29.365
And that's exactly what is happening here.

21:29.865 --> 21:32.445
You would do what you must do,

21:32.585 --> 21:37.325
but only what you, you know, can do at the moment.

21:37.825 --> 21:41.045
Um, considering also the,

21:41.195 --> 21:45.405
political circumstances within which the government is also

21:45.405 --> 21:48.605
operating domestic political, circumstances.

21:49.625 --> 21:54.285
So, simply in, politically sensitive, policies,

21:54.625 --> 21:58.685
like agriculture, we see that,

21:59.125 --> 22:01.765
countries are, preferring the states are preferring

22:01.825 --> 22:04.365
to tweak the policies from dispute to the dispute,

22:04.785 --> 22:09.605
and they leave systemic changes to really big, moments

22:09.825 --> 22:13.085
of renegotiation of, major treaties.

22:14.475 --> 22:19.435
I think that this case, has, a great weight,

22:19.695 --> 22:21.755
not, not maybe economically,

22:21.815 --> 22:23.515
but really in the context of

22:23.945 --> 22:26.315
what do we learn about new uzma.

22:26.745 --> 22:29.155
From this, we learned that the state

22:29.155 --> 22:33.835
to state dispute settlement works, we learned that,

22:34.295 --> 22:38.115
you know, the one broader implication

22:39.095 --> 22:43.795
of having these disputes, is, that,

22:43.975 --> 22:48.395
the legitimacy of treaty, really

22:49.065 --> 22:50.875
depends on the extent

22:51.775 --> 22:55.435
to which the parties are using the dispute settlement

22:55.525 --> 22:59.155
mechanisms and to which the parties comply

22:59.155 --> 23:00.195
with the 3D rules.

23:01.335 --> 23:02.875
And that's very important.

23:03.855 --> 23:07.955
Um, I also believe that,

23:08.655 --> 23:13.075
having already two disputes in this area can,

23:14.655 --> 23:19.155
show us, with some level of,

23:19.935 --> 23:22.155
you know, predictability certainty,

23:23.045 --> 23:26.155
where is the first review of uzma going to go?

23:26.815 --> 23:30.355
And that is going to happen in 2026 in accordance

23:30.385 --> 23:32.595
with the uzma provisions that

23:32.595 --> 23:35.555
after, you know, six years of existence of the 3D,

23:35.575 --> 23:37.675
the three partners would come together

23:37.975 --> 23:42.475
and that they would actually do the review of the, 3D

23:42.535 --> 23:43.595
how it has worked.

23:44.255 --> 23:48.965
Um, I'm pretty sure that the United States,

23:49.275 --> 23:53.085
will, have, some,

23:53.955 --> 23:55.725
important comments to make

23:55.945 --> 23:58.205
how the treaty has worked in the context

23:58.345 --> 24:00.405
of them actually getting a better access

24:00.545 --> 24:02.365
to Canadian dairy market.

24:03.065 --> 24:04.165
As a matter of fact,

24:04.395 --> 24:08.565
just recently the US trade representative, Catherine Tai,

24:09.425 --> 24:12.325
has, given an interview at the Brookings

24:12.325 --> 24:16.565
Institute event, and, she actually has, raised

24:16.595 --> 24:18.125
that concern and she has

24:18.645 --> 24:20.325
actually commented on these disputes.

24:20.345 --> 24:24.885
So I would say that that's, another, you know,

24:25.355 --> 24:27.485
kind of implication that I can see.

24:27.905 --> 24:29.925
And I also see a broader implication

24:29.925 --> 24:33.685
because again, this,

24:34.945 --> 24:39.285
can create, problems, with respect

24:39.285 --> 24:42.085
to negotiation of any further treaties.

24:42.625 --> 24:46.645
Um, the level of compliance, of, you know,

24:46.665 --> 24:50.125
the parties that are involved in these disputes are

24:50.645 --> 24:54.565
actually, you know, noticed by their potential trade,

24:54.745 --> 24:56.285
trade partners.

24:56.785 --> 25:00.725
And, I'll just say that Canada, with respect

25:00.725 --> 25:02.005
to dairy market,

25:02.505 --> 25:06.485
and dairy industry has actually concluded,

25:07.035 --> 25:11.405
bilateral agreement with the European Union in, 2017.

25:11.555 --> 25:15.205
That also, has very specific rules with respect

25:15.225 --> 25:19.325
to the Europeans, access to Canadian dairy market.

25:20.015 --> 25:22.685
Again, C-P-T-P-T

25:22.795 --> 25:26.805
came into force in 2018 also prior to uzma.

25:26.865 --> 25:28.125
And now we have Uzma.

25:28.645 --> 25:33.365
I mean, dairy market itself is, may not be that significant

25:33.395 --> 25:38.085
because, also, you know, milk doesn't really travel

25:38.115 --> 25:40.365
that well and there are only few partners

25:40.365 --> 25:43.045
that can actually import something to Canada, right?

25:43.305 --> 25:44.325
Uh,

25:44.625 --> 25:48.725
but, again, as, reflection

25:48.725 --> 25:51.525
of some maybe broader problem with compliance,

25:51.555 --> 25:54.125
with the 3D rules, that may,

25:55.035 --> 25:58.365
that may have impact on others, who want to make,

25:58.375 --> 26:00.405
trade agreements, with the parties.

00:00 - Let me start giving you the context by explaining what coma really is, and then to situate it in an even broader context of global trade, because it is all relevant for the disputes between, United States and Canada with respect to Canada's, dairy, supply management,

00:24 - allocations, of tariffs. so Uzma is the abbreviated name for Canada, United States, and Mexico. Preferential trade and investment agreement that came into force on July 1st, 2020, and it actually replaced the previously existing North American Free trade Agreement, that came into force, 20 years, from now, from this moment, on January, 1994.

01:02 - And Uzma was, renegotiated during the Trump administration, and, all three partners, all three states, wanted to make some changes to the agreement that, became, really inefficient and in, not capable to regulate, certain new industries and to reflect changes, within the North American market and global market. primarily

01:38 - and relevant to this particular dispute, is, that the Americans wanted better access to the, dairy product market in Canada. And, it is important to situate this, you know, request, to the particular industry, and that's agricultural industry under all bilateral, regional and global trade. Three Ds, maintaining some form of protection, of national agricultural industries is allowed.

02:24 - WTO, agreement on, on agriculture allows for that, NAFTA allowed for that. And what the American, party wanted with uzma is to actually increase, their access to that protected market. At the core of the Canadian protection are the rationales that everybody uses, and that is that, it, it is Incredibly important for every government to protect domestic agricultural market from instability,

03:08 - in global market prices. And the second one is that, agricultural industries incredibly important because, it is ensuring food security. but in practice, again, we see that a lot of developed countries are trying to maintain protectionist measures, that they're also providing subsidies for their agricultural products. so Canadian, protective,

03:44 - measures are built into Canadian dairy supply management system that, is built on three pillars. One is controlled production that would ensure that the quantity of, raw milk, that is produced in Canadian domestic market, really corresponds to domestic demand. Then the second pillar is pricing mechanism, and that is that, Canada is allowed to actually maintain high prices for raw milk and milk products, for domestic market.

04:27 - and that is ensured by basically, allowing, Canadian, you know, board the authorities or milk boards to buy all the, raw milk, produced in Canada, and to then sell it at high prices to, milk processors. and according to WTO rules, that supply management system, is allowed and according to nafta, it is allowed,

05:04 - and according to the United States, claims that were made, that, dairy supply and management system, is okay. The third pillar is at the core of a dispute to some extent, and that is, really controlled imports, of dairy products by controlling the quantity, that could be imported in Canada, and that is controlled by, using this, TRQ system or, tariff freight quotas, which,

05:45 - basically our two tier tariffs. so at the first level, they allowed limited import volume, or quota, at the low tariff of milk products. And then at the second level, additional above quota import is subject to a higher tariff because of this, supply management system, we do have in Canada, well protected interests of, milk producers or dairy product producers, farmers

06:26 - and processors, and processors are those who are basically, using that raw milk and, turning it into, products, milk products that we are, you know, buying, as consumers and further processors that further incorporate dairy products in some other, you know, in some other products. But on the other side, Canadians as consumers are pa, are paying much higher prices for

07:00 - milk products in comparison. For example, we pay 30% higher, price for a gallon of fluid milk than Americans. some, you know, milk, products, such as, for example, powder milk, or butter, are the price 200 or 300%, you know, above the rate that, Americans are paying. So that is the background really of this dispute. Americans wanted, you know, to get

07:39 - through uzma renegotiations, and they were expecting to get, additional 3.6 increase in their access to Canadian dairy market, which would be the double of the allowed import, under the WTO, rules. And that would amount to 227 million, US dollars extra for, you know, American, milk producers. But that's a tiny segment of domestic milk market in Canada, which is like 16 billion

08:17 - Canadian dollars worth market in December, 2020. It is really just few months after, SMA came into place, the, groups that are lobbying for, American milk producers were very unhappy with the outcome of the negotiations. And, in 2020, in December, the United States, ask for consultations with Canadian governments with respect to this TQS allocations

09:01 - and, that, ended up in, no solution, whatsoever. So, the parties proceeded, where the request the Americans would request for the, panel, establishment in May, 2020 first on the basis of chapter 21 of uzma. That is the state to state, arbitration, and the US claim was not really challenging the legitimacy of Canadian, dairy management supply system,

09:40 - and they were not challenging even the fact that the tqs are distributed primarily to Canadians. The claim was really about, the practice of allocating those tqs only to Canadian processors and further processors. What that really means in simple terms is that the Americans would be really, selling the cheapest or exporting the cheapest products to Canadian counterparts, and they would be using that milk

10:19 - to create the additional revenue. and the claim was if the allocation to of the RQs would be broadened to include distributors, and those are, you know, the companies that are purchasing and reselling dairy products to third parties, or if it would include retailers that are, you know, selling it to the grocery industry, to supermarkets, to grocery stores, warehouse clubs, you know, in Canada, then the American producers would be able to get that, you know, additional revenue

10:58 - or economic rent as the economist would say. So that was at the core of a dispute, that, the Canada is violating chapter three of uzma obligations because it is limiting the allocation of tqs to particular actors in their industry, and it's not distributing it to others. So, in a way, Canada, tried to justify its allocations and saying that basically it is not violations

11:42 - of the provisions of the, of the, cosma agreement. And without going really into a fine details of every single technical provision, I think that what really matters is the outcome. And it is quite interesting. The outcome was, to some extent, beneficial to Canada because it could actually keep the supply management system and the allocation, to some extent, unchanged,

12:16 - but it was beneficial to Americans because the panel was basically finding that, yes, distributors and, you know, retailers were cut out of the system and Canada should make these changes. It is important to know that once the panel makes, publishes the report, and that really, I mean, they made a decision, I think, in December, 2021, and then they, published the report for the public early in 2022.

12:48 - so if I may say a few words how Canada responded now to, to those claims, I would certainly say that Canada, was happy with the, with the decision and they conducted, broad consultations with all the actors that are, affected by, by potential changes, to the allocation. And they did actually make changes to allow for distributors to also receive, some tqs,

13:32 - but not to re retain, retailers. now Americans were not happy with this. and, and so interesting thing is that, there is no appeal to this panel decision. So, the dairy lobby in the United States sought from the government in Washington to, perhaps put some retaliatory measures, against Canada because they found that, again, the changes that were made, and not only to exclude the retailers,

14:15 - but also there were some other additional conditions that were put on. you know, the other actors, distributors that were, that were getting tqs, are still really violating, uzma. So what happened next is that basically Canadians launched, sorry, the Americans launched the second dispute under uzma, and, that's happened, in May, 2022. And, the new panel was established

14:55 - and the new panel had to deal with four different claims by, the United States. and, majority of the panel two panelists found, against those claims. And one dissenting panelists, found, that, Canada actually, has, been still violating, uzma provisions. But, again, Canada was very happy with the decision, that was the vindication of their, positions

15:35 - and, you know, tweaking their, supply management system and their measures, as the dispute, as the first dispute has required. it might be interesting to know, that similar provisions, with respect to, dairy industry that we see in Uzma have previously been negotiated under, C-P-T-P-P, comprehensive and progressive agreement for transpacific partnership. Again, I think it's interesting to know that these,

16:12 - those provisions were actually included in a draft of C-P-T-P-P because of the United States, and, their position United States ended up later pulling out of C-P-T-P-P, but, the provisions were such that it enabled, New Zealand to launch the claim. And the C-P-T-P-P also similarly challenging, Canadian, dairy, industry, tqs, allocation and, and, New Zealand lost that dispute or Canada won.

16:47 - I think that, many international, trade scholars, lawyers or political scientists of economists would say that, governments are responding, to decisions of international tribunals, when they're found to be in breach of certain international trade rules by, tweaking their, policies, and laws that are found to be in violation of international trade rules rather than doing substantive changes for at least three reasons.

17:24 - one reason would be that, the nature, the mere nature of the, international trade treaties is such, and especially in certain with respect to certain, significant or strategic industries, or that they, give significant, significant deference to, national governments, to regulate, these industries. So the rules are such that provide enough flexibility for the governments to respond.

18:06 - So that's the first thing. And agriculture is certainly, one of those industries where we see that negotiations of new rules are extremely difficult and, they have to be, you know, flexible enough so that the countries can actually cooperate and accept those rules. So that's the first one related to the nature of the trade treaties. The second one is really related to, the,

18:37 - power of dispute settlement bodies, in international, trade, and international law in general. those, those, dispute settlement bodies are very important and their findings and reports are very important because they are able to actually find exact points of violation of treaties and they would recommend, changes of the, related policies, national policies and, and rules and, in accordance with that.

19:15 - International treaties would allow, countries, that are heard by those violations to exercise some other treat D rights, such as the rights to maybe withdraw concessions, that I have given the country that is violating treaty or to impose retaliatory measures. But my point really is that those tribunals do not have the enforcement powers that domestic courts do have. So, the country still, again, have the possibilities,

19:50 - to, really use those findings rather as the points of pressure for the violators and to try to actually corral them into another form of, cooperation and, you know, trying to actually persuade them to change their policies. And that could be done again, either through imposing some retaliatory measures or maybe opening a new round of negotiations.

20:24 - with respect to compliance procedures, so basically, most of the countries most of the time comply with most of the laws, but that compliance is usually not a hundred percent compliance. It is the performance of the 3D you know, rules, but, we find that compliance is insured by countries actually exercising their right to go, and use the dispute settlement process, that the treaties allow them to, to use. and the thirdly, I think that,

21:01 - we talk more about tweaking than really fully complying is that, many countries like Canada developed countries do have institutional knowledge and capacity to always choose, the way of, you know, changing their policies in a way that is the, the least damaging to their own industries. And that's exactly what is happening here. You would do what you must do,

21:32 - but only what you, you know, can do at the moment. considering also the, political circumstances within which the government is also operating domestic political, circumstances. So, simply in, politically sensitive, policies, like agriculture, we see that, countries are, preferring the states are preferring to tweak the policies from dispute to the dispute, and they leave systemic changes to really big, moments of renegotiation of, major treaties.

22:14 - I think that this case, has, a great weight, not, not maybe economically, but really in the context of what do we learn about new uzma. From this, we learned that the state to state dispute settlement works, we learned that, you know, the one broader implication of having these disputes, is, that, the legitimacy of treaty, really depends on the extent

22:51 - to which the parties are using the dispute settlement mechanisms and to which the parties comply with the 3D rules. And that's very important. I also believe that, having already two disputes in this area can, show us, with some level of, you know, predictability certainty, where is the first review of uzma going to go? And that is going to happen in 2026 in accordance

23:30 - with the uzma provisions that after, you know, six years of existence of the 3D, the three partners would come together and that they would actually do the review of the, 3D how it has worked. I'm pretty sure that the United States, will, have, some, important comments to make how the treaty has worked in the context of them actually getting a better access

24:00 - to Canadian dairy market. As a matter of fact, just recently the US trade representative, Catherine Tai, has, given an interview at the Brookings Institute event, and, she actually has, raised that concern and she has actually commented on these disputes. So I would say that that's, another, you know, kind of implication that I can see. And I also see a broader implication

24:29 - because again, this, can create, problems, with respect to negotiation of any further treaties. the level of compliance, of, you know, the parties that are involved in these disputes are actually, you know, noticed by their potential trade, trade partners. And, I'll just say that Canada, with respect to dairy market, and dairy industry has actually concluded,

25:07 - bilateral agreement with the European Union in, 2017. That also, has very specific rules with respect to the Europeans, access to Canadian dairy market. Again, C-P-T-P-T came into force in 2018 also prior to uzma. And now we have Uzma. I mean, dairy market itself is, may not be that significant because, also, you know, milk doesn't really travel that well and there are only few partners that can actually import something to Canada, right?

25:43 - but, again, as, reflection of some maybe broader problem with compliance, with the 3D rules, that may, that may have impact on others, who want to make, trade agreements, with the parties.

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