Global Affairs Canada (“GAC”) recently announced the opening of the tariff-rate quota (the “TRQ”) application period for the 2024-2025 dairy year, which is open from May 1, 2024, to June 15, 2024.  We previously talked about the TRQ application process; however, this year’s announcement also comes with changes flowing from New Zealand’s successful challenge of Canada’s dairy TRQ policies.

 What is a TRQ?

Canada has a number of supply-managed goods –  largely agricultural products such as milk, butter, poultry, eggs, etc.  Imports of these products into Canada are practically prohibited with punitively high tariff rates (i.e., generally over 200%).  However, when negotiating free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the “CPTPP”), Canada generally makes market access commitments to its trading partners – agreeing to allow a defined quantity of supply-managed goods to be imported at a lower level of duty.  Canada then establishes TRQs to track and enforce those import limits. 

Under the TRQ system, GAC establishes a specific quantity of an importable product (the “Available Quantity”), and then allocates that Available Quantity through a TRQ, which is granted to eligible applicants annually using a prescribed allocation method.  (For more information, also see our prior blog here).

Canada-New Zealand Dispute

In 2022, New Zealand filed a complaint against Canada using the CPTPP’s dispute settlement mechanism.  New Zealand claimed Canada’s dairy TRQ allocation policies undermined their market access to Canada.  The CPTPP panel report was a win for New Zealand, with the panel finding that Canada restricted allocation access by prioritizing Canadian processors, and using a pooling system which “operates to limit the opportunity for otherwise eligible applicants to use the TRQs fully.”

Revised Dairy TRQ Allocation Policies

Following the CPTPP panel’s decision, it is not surprising that GAC implemented a number of changes to its CPTPP dairy TRQ policies.  There were a number of changes, including the removal of allocation holder pools, the inclusion of distributors as eligible applicants.  Canada has also increased the further processing end-use requirement under the CPTPP Butter TRQ from 80% to 85% of the TRQ volume.  Additionally, the transfer policy has been amended to allow for two-way transfers under all CPTPP dairy TRQs.

What to expect from the TRQ Application Process

At first, the TRQ application process appears deceptively simple. It involves completing an application form and submitting it to a designated government email address.  However, there are plenty of pitfalls (particularly for new market entrants).  For example, each type of product has its own requirements and limitations, and the applications for an allocation must be made with reference to a particular trade regime (e.g., CPTPP, CETA, CUSMA, etc.). 

Takeaways

The changes to the Dairy TRQ policies are good news for distributors, but generally the TRQ system, in its current form, favours established Canadian businesses over new entrants.  Careful consideration is required to secure allocation and attempt to grow that allocation over time.  Legal guidance throughout the application process is often necessary to help navigate the rules.

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