The United States won a huge battle when the World Trade Organization (WTO) dispute settlement panel ruled that the steps Canada took to correct its export subsidy violations were insufficient. The U.S. estimates that the illegal Canadian dairy export subsidies have resulted in lost sales by American producers and processors of up to $35 million per year.

The dispute over Canada’s dairy export subsidy programs dates back to 1997. In this latest chapter, the U.S. and New Zealand argued — and the WTO agreed — that the new dairy programs in each Canadian province still constituted export subsidies and therefore violate the export subsidy ceiling which Canada agreed to in the 1995 WTO agriculture agreement on subsidized cheese exports.

As a result of the ruling, and pending Canada’s final appeal, the U.S. and New Zealand may each impose trade sanctions against Canada. In February, when both countries filed the complaint, they stated that if the WTO ruled in their favor, they would ask for the WTO’s authorization to impose $35 million each in annual punitive duties on Canadian imports.

Canada has 60 days to file one last appeal. If they do appeal, the WTO appellate body is expected to rule within 90 days.