The U.S. is challenging Canada’s allocation of dairy tariff-rate quotas, saying the way it’s done undermines American farmers’ ability to sell a wide range of products to Canadian consumers.

U.S. Trade Representative Robert Lighthizer announced the enforcement action, the first in terms of the United States-Mexico-Canada Agreement that went into force in July, in a statement Wednesday.

By setting aside and reserving a percentage of each dairy TRQ exclusively for processors, Canada’s measures “violate its commitments and harm U.S. dairy farmers and producers,” Lighthizer said.

The U.S. dairy industry has long pushed for greater accountability by its northern neighbor, part of the impetus for including dairy policy in the July pact that replaced the North American Free Trade Agreement.

“I applaud USTR for hearing our concerns and relying on our guidance to take this critical enforcement step to ensure that the agreement is executed in both letter and spirit,” said Tom Vilsack, president and chief executive officer of the U.S. Dairy Export Council and President-elect Joe Biden’s pick to be agriculture secretary. “This is the critical first step, but more work may be needed to ensure Canada complies.”

Along with access to Canada’s market through tariff-rate quotas, U.S. producers have criticized the country’s dairy-pricing system. Changes to the system in 2016 created and subsidized domestic production of so-called Class 7 milk, a form of milk powder that makes up a bulk of international dairy exports. That lowered global prices of the powder, and trimmed revenues for producers from the U.S. to New Zealand.

Canada agreed to eliminate the system through guidelines that are to be solidified six months from the trade agreement’s July enforcement. But industry officials have become concerned that a similar system could replace it without addressing those market issues.

“I want to be clear that Canada will always respect the agreements that we have entered into and USMCA is no different,” Mary Ng, Canada’s trade minister, said in an interview at a news conference. “We fully intend and we are respecting that agreement. We will always stand up for Canadian farmers, but I am very confident that Canada is meeting its obligations under USCMA.”

The TRQ allocations by the federal government are consistent with the terms of the agreement, said Jacques Lefebvre, the chief executive officer of Dairy Farmers of Canada.

“Anyone who reads the text of CUSMA would see this, but the outgoing administration may feel that, by taking this approach, it will endear itself with family-owned dairy farms in the U.S.,” Lefebvre said, using the Canadian acronym for the new trade deal.

A bipartisan group of legislators called for the enforcement of USMCA’s dairy provisions in August. In a joint statement Wednesday, Senate Finance Committee Chairman Chuck Grassley of Iowa and Senate Banking Committee Chairman Mike Crapo of Idaho reiterated their support for the USTR’s action.

“We hope our Canadian partners can resolve this issue without going to arbitration, but we are supportive of Ambassador Lighthizer’s efforts either way.”

--With assistance from Jenny Leonard.