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Canada's dairy tariff rate quotas (TRQs) set out how much dairy product can cross its border tariff-free.
Trade Minister Damien O'Connor said New Zealand had today submitted a request for consultations under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade agreement both countries - and 10 others - are signatories to.
It is the first time such a dispute settlement has been sought by any country under the CPTPP.
"New Zealand considers the manner in which Canada is implementing its dairy TRQs to be inconsistent with its obligations under CPTPP," O'Connor said.
"Many of Canada's dairy TRQs remain unfilled and this represents a tangible loss to New Zealand's dairy exporters."
"The value to New Zealand of this lost market access is estimated to be approximately $68 million over the first two years, with this expected to increase year on year as the size of these quotas increase under CPTPP."
New Zealand's relationship with Canada was excellent, but "occasionally even good friends disagree, and it's for that reason dispute settlement mechanisms in free trade agreements such as CPTPP exist to provide a neutral forum for settling such disputes", he said.
Canada has seven days to respond, after which the two countries can formally try to resolve the issue.
It follows a similar complaint over Canada's quotas by the United States and Mexico, who took their case to a dispute settlement panel under the US-Mexico-Canada trade agreement USMCA.
The panel found Canada's approach was inconsistent with its commitments, although Canada said the finding was "overwhelmingly in Canada's favour".