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“If we can’t resolve this through negotiations, I believe my members will be very clear that everything is on the table,” he said in a phone interview.

A WTO panel sided with the U.S. and ruled in 2002 that Canada breached its trade obligations through illegal subsidies to its dairy industry. The two countries reached a settlement in 2003.

Castaneda said challenges against the protein sales could eventually result in rulings that force Canada to ditch supply management.

In June, U.S. agriculture secretary Sonny Perdue said he would prefer to address dairy irritants before NAFTA talks begin and said supply management was fine as long as it did not harm the U.S. industry.

But on July 14 he appeared to toughen his stance, saying through a spokeswoman he felt “all options should be on the table” in the NAFTA talks and that dairy remained a concern.

Although dairy was originally excluded from the original 1994 deal, the U.S. may push for it to be part of the talks on a new pact.

“I don’t see why it wouldn’t be, when you’re looking at an overall trading relationship … there is no doubt in my mind that it would be on the table,” said one person familiar with Washington’s approach.

Despite the more strident U.S. line, Prime Minister Justin Trudeau’s government has little interest in compromise.

“We are fully trade compliant and trade in dairy products massively favors the United States,” said a Canadian government source.

Canada’s dairy sector includes $6 billion in annual farmer milk sales.