Trade protection via tariff rate quota administration

Abstract

In January 2022, the first dispute settlement panel convened under the United States-Mexico-Canada Agreement (USMCA) ruled that administration procedures for Canadian tariff rate quotas (TRQs) on U.S. dairy products violated Canadian trade obligations. Canada subsequently published new dairy quota administration policies to comply with the ruling. Using a dataset with monthly bilateral dairy trade flows at the 6-digit level from January 2014 to October 2023, we empirically assess the economic outcomes associated with this dispute from the perspective of the U.S. dairy industry. We find that — even under Canada’s original quota administration procedures — Canadian dairy TRQ concessions represented meaningful trade liberalization relative to the pre-USMCA status quo. However, in light of Canada’s revised procedures following the panel ruling, U.S. exports to Canada experienced a substantial increase for affected dairy products. This indicates that Canada’s original quota administration procedures represented a “binding” trade restriction beyond the negotiated quota. USMCA dispute settlement procedures effectively worked to remove the barrier.