Recently, as I heard the U.S. express concerns that Canada has not complied with last December's USMCA Dairy TRQs panel ruling, I wondered how compliance proceedings worked under USMCA Chapter 31. The relevant provision states:
Article 31.19: Non-Implementation – Suspension of Benefits
1. If the disputing Parties are unable to agree on a resolution to the dispute under Article 31.18 (Implementation of Final Report) within 45 days from receipt of the final report, the complaining Party may suspend the application to the responding Party of benefits of equivalent effect to the non-conformity or the nullification or impairment until the disputing Parties agree on a resolution to the dispute.
2. In considering what benefits to suspend pursuant to paragraph 1:
(a) a complaining Party should first seek to suspend benefits in the same sector as that affected by the measure or other matter that was the subject of the dispute; and
(b) a complaining Party that considers it is not practicable or effective to suspend benefits in the same sector, may suspend benefits in other sectors unless otherwise provided for elsewhere in this Agreement.
3. If the responding Party considers that:
(a) the level of benefits proposed to be suspended is manifestly excessive; or(b) it has eliminated the non-conformity or the nullification or impairment that the panel has determined to exist,
it may request that the panel be reconvened to consider the matter. The responding Party shall deliver its request in writing to the complaining Party. The panel shall reconvene as soon as possible after the date of delivery of the request and shall present its determination to the disputing Parties no later than 90 days after it reconvenes to review a request under subparagraph (a) or (b), or 120 days after it reconvenes for a request under both subparagraphs (a) and (b). If the panel considers that the level of benefits the complaining Party proposes to suspend is manifestly excessive, it shall provide its views as to the level of benefits it considers to be of equivalent effect.
4. If the panel’s views are that the responding Party has not eliminated the non-conformity or the nullification or impairment, the complaining Party may suspend benefits up to the level the panel has determined under paragraph 3.
I read all this to say that if the U.S. had a concern about Canada's implementation of the Dairy panel report, it could undertake tariff retaliation 46 days after the panel report is issued, without a compliance panel ruling (although domestic procedures probably would mean that it takes longer than 46 days). In addition, though, if Canada thought its new measures had brought it into compliance, it could request a panel to examine those measures and try to get a ruling to that effect.
I wasn't totally sure what would happen if the panel couldn't rule before the tariffs were ready to go into effect. Can a complainant impose tariffs before there is a ruling that the new measures are not in compliance? I'm not sure I like that idea, and these procedures seem a bit odd to me.
But regardless, USTR has now taken a new action in the case, and I'm trying to figure out what it means. Today it requested consultations on the Canadian Dairy measures that exist right now, alleging that they violate USMCA obligations. The request states:
The United States has previously raised concerns about Canada’s then-extant dairy TRQ allocation measures, and in December 2021, a USMCA dispute settlement panel found those measures to be inconsistent with Canada’s USMCA obligations.1 Subsequently, Canada introduced changes to those measures in response to those adverse findings,2 but, as discussed below, it appears that Canada’s current dairy TRQ allocation measures are inconsistent with Canada’s obligations under the USMCA.3
Footnote 3 says: "This request for consultations is without prejudice to U.S. rights under the USMCA relating to the prior USMCA dispute settlement proceeding or the Final Report of the Panel, dated December 20, 2021."
So, instead of moving forward with tariff retaliation now pursuant to the earlier panel ruling, as it seems like the rules permit, USTR is bringing a complaint against the new measures.
Why is USTR taking this approach? I speculated on Twitter that maybe in this economic climate, with all the concerns about inflation, and the calls to scale back the Section 301 tariffs to help bring down prices, USTR is wary of proposing new tariffs, even ones taken pursuant to enforcing compliance with a trade agreement. However, at the Georgetown Law International Trade Update today, a USTR official's answer when asked about their strategy here, if I understood it correctly, seemed to emphasize the fact that the USMCA panel ruling focused on one particular issue and the panel had exercised judicial economy on other issues, and also there were some other policy changes of concern in the new Canadian measures. Therefore, USTR filed a new complaint. Nonetheless, I still wonder whether, under the USMCA rules, USTR could just argue that the parties have been "unable to agree on a resolution to the dispute" here and therefore they are going to impose the retaliation now. (To be clear, I'm not saying I think they should approach it that way. Maybe I'm just used to everything being ratcheted up to 11.)
