U.S. Trade Representative Katherine Tai met with Canada’s Minister Mary Ng to discuss ongoing USMCA cooperation and key trade issues, including electric vehicles, supply chain resilience, and concerns over Canada’s digital service tax and dairy tariff measures. The ministers agreed to continue collaborating on these and other shared priorities.
More details of their discussions on several critical areas:
• Electric Vehicles and Supply Chains: The transition to electric vehicles (EVs) is a significant focus, given the challenges posed by USMCA’s rules of origin, which were initially designed for internal combustion engine vehicles. These rules require a high percentage of vehicle content to be sourced from North America, which poses challenges for EV battery supply chains that often rely on components sourced from outside the region. The ministers emphasized the importance of strengthening supply chains, particularly for EVs and critical minerals, to enhance North American economic security and competitiveness.
• Digital service tax and dairy tariff measures: The U.S. expressed ongoing concerns about Canada’s proposed digital service tax, which could affect American technology companies operating in Canada. Additionally, there are longstanding issues with Canada’s dairy tariff rate quota allocation, which the U.S. views as restrictive to its dairy exports.
The dairy tariff measures under the USMCA have been a significant point of contention between the U.S. and Canada, impacting the overall cooperation within the agreement. The primary issue revolves around Canada’s administration of its dairy tariff-rate quotas (TRQs), which the U.S. argues are being allocated in a manner that restricts American access to the Canadian dairy market.
— Dispute over TRQ allocation: The U.S. has challenged Canada’s allocation of dairy TRQs, arguing that Canada reserves a significant portion of these quotas for Canadian processors, which limits the access intended for U.S. dairy exports under the USMCA. This allocation strategy has been seen as a breach of USMCA commitments, leading to formal disputes and panel rulings.
— Panel rulings and compliance issues: The U.S. has prevailed in some dispute panel rulings, which found that Canada’s TRQ allocations were inconsistent with USMCA commitments. However, subsequent Canadian policy revisions have not fully resolved U.S. concerns, leading to ongoing tensions and additional disputes.
— Economic implications: These disputes have significant economic implications for U.S. dairy producers, as they continue to face barriers in accessing the Canadian market. The limited market access affects revenue generation for U.S. dairy farmers and processors, undermining the anticipated benefits of the USMCA.
— Continued negotiations and enforcement: Tai has emphasized the need to enforce USMCA provisions and ensure that U.S. dairy producers receive the full benefits of the agreement. This ongoing enforcement effort reflects the broader challenge of maintaining cooperative trade relations under the USMCA while addressing specific sectoral disputes.
• Trade flow and emergency coordination: Both countries are committed to enhancing coordination on trade flows, particularly in emergency situations. They plan to release mechanisms to support the maintenance of North American trade flows during such times, reflecting the importance of a resilient and responsive trade infrastructure.
• Non-market policies: There is a shared commitment to addressing non-market policies and practices that could undermine the USMCA and harm workers in both countries. This includes ensuring that goods produced with forced labor are not imported into the region.