U.S. Says Canada Shields Its Dairy Market in Violation of Trade Pact

In a letter to his Canadian counterpart, Mr. Lighthizer said the U.S. was exercising its rights to enforce the USMCA, adding that Washington may request the establishment of a USMCA dispute-settlement panel if the U.S.’s concerns aren’t addressed.

“Canada’s measures violate its commitments and harm U.S dairy farmers and producers,” Mr. Lighthizer said in a written statement. “We are disappointed that Canada’s policies have made this first ever enforcement action under the USMCA necessary to ensure compliance with the agreement.”

A spokeswoman for Mary Ng, Canada’s minister of small business, export promotion and international trade, said her country was “in full compliance with its commitments” under the USMCA.

The free-trade agreement with Canada and Mexico came into effect earlier this year after the Trump administration renegotiated the terms of the North American Free Trade Agreement, its predecessor.

According to the International Trade Commission, the USMCA—if implemented as negotiated—would boost U.S. dairy exports by more than $314 million a year.

The U.S. dairy industry, with support from many members of Congress, has complained about its market access to Canada.

“USMCA is designed to improve trade with Canada, while modifying some of Canada’s trade-distorting dairy policies. We knew from day one that enforcement would be key to bringing the intended benefits home to America’s dairy industry,” said Tom Vilsack, president and chief executive of the U.S. Dairy Export Council.

Mr. Vilsack is President-Elect Joe Biden’s pick for agriculture secretary, the position Mr. Vilsack held during the Obama administration.

Write to Yuka Hayashi at yuka.hayashi@wsj.com