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Canada violated a trade accord with the U.S. and Mexico by reserving most of its preferential dairy tariff-rate quotas for Canadian processors, a dispute panel found, and Washington warned it could retaliate if Ottawa did not change course.

The U.S. Trade Representative's office claimed victory for Washington in the first dispute settlement panel ever brought under the U.S.-Mexico-Canada Trade Agreement (USMCA) that took effect in 2020. Canada said the report found "overwhelmingly" in its favour.

At issue, in this case, is Canada's practice of reserving 80-85 per cent of the volume of its dairy tariff rate quotas (TRQs), which are specified quantities of products from ice cream to cheese that can cross the border at lower or zero tariffs, for import by Canadian processors.

The U.S.requested the creation of the dispute panel on May 25 after failing to resolve the issue bilaterally with Canada. The panel issued its confidential findings to the parties on December 20th and has now released them publicly, as reported by Reuters.

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