New Zealand has won its trade dispute with Canada over access for dairy products under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade agreement.
Under the agreement, New Zealand gained better access for dairy products in the Canadian market, but complained that Canada was manipulating quotas to block exporters.
An independent panel has ruled that the dairy quotas were improperly used to keep out dairy exports and protect its powerful domestic industry.
Trade Minister Damien O'Connor said the ruling was a significant win for New Zealand producers.
"Canada was not living up to its commitments under CPTPP, by effectively blocking access for our dairy industry to upscale its exports. That will now have to change."
He said the Canadian blocking tactics cost New Zealand exports about $120 million over three years.
It was the first CPTPP trade dispute and New Zealand's first under any free trade agreement.
"Today's ruling will give exporters confidence and certainty that the mechanisms in place will ensure they receive the market access that all members agreed to."
The dispute centred on the ability of New Zealand exporters to use Canada's 16 dairy tariff rate quotas, which allow a certain amount of produce either tariff free or at a low rate and when that is filled a higher tariff applies to further volumes.
The panel found that Canada was granting priority access to its own domestic dairy processors, and was also keeping out local retailers who would have been potential buyers of New Zealand produce.
However, the three person panel turned down, by a two to one majority, two lesser aspects of New Zealand's complaint about consultation over quota changes, and the implementation of new quotas.
Australia strongly supported the New Zealand position making its own submissions as an interested third party.
O'Connor said Canada remained a close diplomatic and trade partner, and the panel mechanism allowed a neutral way to resolve the dispute.
Dairy sector welcomes outcome
The Dairy Companies Association of New Zealand executive director Kimberly Crewther said the news was cause for celebration and underscored the importance of dispute provisions in trade agreements.
"It is outrageous that Canada has sought to undercut the access it promised by reserving most of the quota quantities for domestic processors of those same products who are least likely to import."
Crewther said the New Zealand team behind the case had put in a lot of hard work.
"Defending our access rights under all New Zealand trade agreements is important, and taking on a G7 country with a history of bending the rules has been no easy task.
"Notwithstanding its welcoming of the case outcome, DCANZ is frustrated that, where dairy is concerned, Canada has a repeated pattern of needing to be legally compelled to adhere to its international trade commitments.
"Canada's failure to fulfil its obligations has robbed New Zealand exporters of trade opportunities for over four years now. DCANZ is calling on the Canadian government to do the right thing by changing to a system that is fair and above board as soon as possible."