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U.S. Pressures Canada on Dairy and Digital Rules as CUSMA Review Looms

A pivotal moment is approaching for North American trade relations. The United States has formally outlined a series of demands that Canada must address before it agrees to extend the Canada-United States-Mexico Agreement (CUSMA). With the current agreement set to expire in 2036, negotiators are already clashing over contentious issues that strike at the heart of Canada’s supply-managed dairy sector and its emerging digital economy.

According to reports from CBC, CTV News, and The Globe and Mail, the U.S. Trade Representative (USTR) has signaled that progress on a CUSMA extension is contingent upon Canada dismantling specific barriers that American producers claim limit their market access. The negotiations highlight a complex balancing act for the Canadian government: protecting domestic industries while maintaining a stable trade relationship with its largest trading partner.

The Core of the Dispute: Dairy and Digital

The current trade tension revolves around two distinct but equally sensitive sectors: agriculture and technology.

The Dairy Battle Continues

Canada’s supply management system, which controls the production and price of dairy, poultry, and eggs, has long been a sticking point for U.S. trade officials. Despite the provisions made during the original CUSMA negotiations—which granted U.S. farmers a significant share of the Canadian dairy market—American producers argue that Canada continues to find ways to limit their access.

The U.S. is now specifically targeting Canada’s grading standards for certain dairy products. According to the CTV News report, American officials are demanding changes to how milk classes are defined and graded. U.S. producers claim that Canada utilizes strict grading requirements to effectively block imported dairy products from entering the market, or forces them into lower-value categories. For Canadian dairy farmers, any further concessions threaten the stability of the supply management system, a pillar of the rural economy that guarantees predictable prices and production limits.

The Online Streaming Act Clash

Beyond the barns and milk trucks, a digital battle is brewing. The U.S. is taking issue with Canada’s Online Streaming Act (Bill C-11). This Canadian legislation requires global streaming giants like Netflix, Disney+, and Spotify to contribute to Canadian content creation funds and promote Canadian programming on their platforms.

According to The Globe and Mail, the U.S. Trade Representative has categorized these requirements as discriminatory. The U.S. argues that these regulations impose discriminatory regulatory obligations on U.S. digital service providers. From Ottawa’s perspective, the Act is essential for the survival and modernization of Canada’s cultural sector. However, Washington views it as a barrier to free trade in the digital services arena.

Recent Updates: The Official Demands

The situation escalated following the release of the USTR’s 2024 "Report on Significant Barriers to U.S. Trade." This annual document serves as the roadmap for U.S. trade policy and explicitly names Canada’s dairy practices and digital regulations as areas of concern.

Key developments include:

• The Threat of Expiration: The CBC reports that U.S. officials are explicitly linking the elimination of these barriers to the future extension of the CUSMA. While 2036 seems distant, the review process scheduled for 2026 is the critical window. If the U.S. feels its concerns are unaddressed, it could refuse the extension, throwing cross-border commerce into uncertainty.
• The Grading Standards: The specific USTR objection centers on how Canada grades "Class 7" type dairy products. The U.S. wants these rules removed to ensure American products compete on a level playing field.
• Cultural Exemptions: Canada has historically fought to keep "cultural exemptions" in trade deals. The U.S. push against the Online Streaming Act is a direct challenge to these exemptions, arguing that digital trade should remain free of protectionist cultural policies.

Contextual Background: A History of Trade Spats

To understand the current friction, one must look back at the history of the Canada-U.S. trade relationship. From the Auto Pact of the 1960s to the original NAFTA in 1994, trade disputes have often centered on agriculture and culture.

The Supply Management Legacy

Canada’s supply management system was established in the 1970s to stabilize the dairy sector. While it provides affordable prices for consumers and stability for farmers, it has been a constant target for U.S. trade negotiators who view it as a protectionist cartel. During the renegotiation of NAFTA into CUSMA (or USMCA as it is known in the U.S.), Canada was forced to concede approximately 3.6% of its dairy market to American producers. The current U.S. push suggests they are not satisfied with that share and are looking for the "loopholes" Canada retained to protect the remaining 96.4%.

The Rise of Digital Protectionism

The Online Streaming Act represents a modern evolution of Canada’s "cultural sovereignty" arguments. In the print and broadcast era, Canada restricted foreign ownership of newspapers and TV stations to ensure a Canadian voice. Now, as media moves online, Canada is trying to apply similar rules to tech giants. The U.S., home to the world’s largest tech companies, views this as an unfair tax on American innovation.

Immediate Effects: Stakeholder Reactions

The U.S. demands have triggered immediate and strong reactions from various Canadian stakeholders.

Canadian Dairy Farmers: The Dairy Farmers of Canada (DFC) have reiterated their stance that the system works for Canadians and that the U.S. is simply trying to force more product into a market that doesn't need it. They argue that they have already met all previous trade obligations.

The Canadian Government: Federal ministers have remained diplomatic but firm. The official stance is that Canada will defend its supply management system and its right to regulate the cultural sector. However, behind the scenes, officials are likely calculating the economic cost of a potential trade war.

The Tech Sector: Canadian media companies generally support the Online Streaming Act, arguing it creates a fairer marketplace. U.S. tech giants, however, have lobbied heavily against the regulations, and the USTR’s involvement validates their concerns.

The Economic Stakes

The numbers involved underscore the gravity of the situation. The Canada-U.S. trading relationship is worth over $1 trillion annually. Roughly 75% of Canada’s exports go to the United States.

If the CUSMA review fails or is not extended: * Tariffs could return: Without the agreement, goods crossing the border could be subject to "Most Favored Nation" (MFN) tariffs, which could be significant for dairy and other protected sectors. * Supply chain disruption: The integrated North American economy, particularly in the automotive and manufacturing sectors, relies on tariff-free movement of goods. Uncertainty alone can deter investment. * Inflation: For Canadian consumers, a breakdown in trade could lead to higher prices for a range of goods, from cheese to streaming subscriptions.

Future Outlook: What Comes Next?

As we look toward the 2026 CUSMA review, several scenarios could unfold.

Scenario 1: The "Grand Bargain" It is possible that Canada will offer minor concessions on dairy grading standards—perhaps administrative changes that offer the U.S. slightly more transparency or access—without touching the core supply management system. On the digital front, Canada might clarify how the Online Streaming Act is implemented to ensure it is not viewed as "discriminatory" while still collecting funds for Canadian content.

Scenario 2: The Stalemate If the U.S. remains uncompromising and Canada refuses to budge on supply management, the political rhetoric will heat up. This could lead to a "war of attrition" where trade remains stable technically, but diplomatic relations sour, making other cooperation (like border security or defense) more difficult.

Scenario 3: The Long Extension A likely outcome is a simple extension of the current CUSMA terms. The U.S. may issue a "warning" to Canada regarding dairy and digital rules but stop short of blowing up the entire agreement. However, the pressure on Canada to eventually open its dairy market further will remain a constant background noise in Canadian politics.

Interesting Fact: The "Chicken" Factor

While much attention is paid to dairy, Canada’s supply management system also covers chicken and eggs. In a strange twist of trade logic, the U.S. is actually a net exporter of chicken to Canada. If Canada were to fully capitulate on supply management, it could theoretically flood the U.S. with cheap eggs and chicken, and vice versa. This complex web of "who exports what" makes a clean resolution difficult.

Conclusion

The "Trump CUSMA" conditions—or more accurately, the U.S. demands under the current administration—represent a significant test for Canadian sovereignty and economic policy. The U.S. has made it clear: they want more access to Canadian dairy shelves and less regulation on American streaming services.

For the Canadian government, the path forward requires navigating a minefield of domestic politics. Farmers in Quebec and Ontario are a powerful voting bloc, and the cultural sector is a champion of Canadian identity. Yet, the