HS 0406 Canadian Cheese Under Section 338: 250k CIF Quebec Cheddar and Mozzarella Worked Stack With TRQ Interplay and USDA Quota Stacking

HS heading 0406 covers cheese and curd. It is one of the most operationally complex U.S. import categories because the MFN rate schedule under HTSUS Chapter 4 layers tariff-rate quota (TRQ) administration on top of ad valorem and specific duties, and now the Section 338 Canada layer adds a 50 percent additional ad valorem duty on top of both the in-quota and over-quota base rates. The July 20 2026 Proclamation on dairy (Proclamation 11047) placed the entire 0406 subheading structure inside Annex I dairy scope, mapped to Chapter 99 heading 9903.03.13 under U.S. Note 51 to Chapter 99 Subchapter III of the HTSUS. The 50 percent additional ad valorem duty attaches at 12:01 AM EDT August 22 2026 after the August 18 Temporary Suspension Proclamation (whitehouse.gov/presidential-actions/2026/08/temporary-suspension-of-additional-duties-to-offset-canadian-discrimination-against-the-commerce-of-the-united-states-with-respect-to-alcoholic-beverages-dairy-and-motor-vehicles/) pushed the effective instant three days out.

For a U.S. importer bringing in Quebec cheddar, mozzarella, or specialty artisan cheese post-August 22, the TRQ mechanics under 19 CFR 132 remain live: in-quota entries pay the low ad valorem rate, over-quota entries pay the high specific rate plus ad valorem, and the Section 338 layer stacks on top of whichever base rate applies. USMCA does not waive it. USDA Foreign Agricultural Service continues to administer the country-specific TRQ allocations.

Here is the subheading scope map for Canadian imports, the TRQ mechanics interplay, and a full worked stack on a 250,000 CIF Quebec cheese shipment.

HS 0406 Subheading Scope for Canadian Imports

Heading 0406 subheadings that matter for Canadian dairy exports to the U.S.:

0406.10 covers fresh cheese (unripened or uncured cheese, including whey cheese, and curd). This is the primary line for mozzarella (fresh, not aged), ricotta, cottage cheese, and Quebec fresh cheese specialties. 0406.10.04 through 0406.10.28 cover the various in-quota and over-quota tiers.

0406.20 covers grated or powdered cheese of all kinds. Includes shredded mozzarella for pizza applications and grated parmesan blends.

0406.30 covers processed cheese, not grated or powdered. Includes Quebec-processed cheddar blends for foodservice.

0406.40 covers blue-veined cheese and other cheese containing veins produced by Penicillium roqueforti. Limited Canadian volume.

0406.90 covers other cheese. This is the largest Canadian export line and includes aged cheddar (Quebec, Ontario, PEI), Gruyere-style Canadian cheese, Emmental-style, and specialty artisan cheeses. 0406.90.06 through 0406.90.99 span the many in-quota and over-quota tiers by cheese type.

All 0406 subheadings map to 9903.03.13 under U.S. Note 51 as the operative Chapter 99 heading for the Section 338 dairy layer.

TRQ Mechanics Under USDA Administration

The U.S. Department of Agriculture Foreign Agricultural Service administers the cheese TRQ under 7 CFR 6.20 through 6.37, with country-specific allocations published annually. For Canadian cheese specifically, the U.S.-Canada cheese TRQ was originally set under the Uruguay Round Agreements Act and preserved through NAFTA and USMCA. USMCA Chapter 3 Annex 3.A includes dairy TRQ commitments.

The mechanics: importers holding a valid TRQ import license (issued by USDA FAS for the specific cheese subheading and country of origin) enter the goods at the in-quota rate. Importers without a license or importers entering after the country-specific TRQ is filled for the quota year enter at the over-quota rate.

In-quota rates on 0406 subheadings run in the range of 10 to 12 percent ad valorem with modest specific rate components. Over-quota rates run in the range of 1.055 to 2.146 per kg specific plus 6 percent to 15 percent ad valorem, depending on the specific 10-digit line. The over-quota rate can approach or exceed 100 percent ad valorem equivalent for high-value specialty cheese.

Section 338 stacks on top of whichever base rate applies. In-quota entries carry the in-quota base plus the 50 percent Section 338 layer. Over-quota entries carry the over-quota base plus the 50 percent Section 338 layer. USMCA-qualifying origin (Canadian dairy meeting USMCA Chapter 4 rules of origin) does not offset either the base MFN rate or the Section 338 layer.

Worked Stack: 250,000 CIF Quebec Cheddar and Mozzarella Shipment

Take a 250,000 CIF Quebec cheese shipment ex-Montreal, delivered via truck to a New York State foodservice distributor at Champlain border. Composition: 150,000 CIF aged cheddar (30 percent of container) and 100,000 CIF fresh mozzarella (70 percent of container), USMCA qualifying.

Aged cheddar portion classified under HTS 0406.90.16 (cheese other, over-quota, cheddar): 150,000 CIF. Assume the U.S. importer holds no cheese TRQ license and the annual Canadian cheddar TRQ is filled for the year. Enters at over-quota rate.

Mozzarella portion classified under HTS 0406.10.18 (fresh cheese, over-quota, mozzarella): 100,000 CIF. Same TRQ position, over-quota entry.

Pre-Section 338 stack (baseline):

Aged cheddar 0406.90.16 over-quota base rate: approximately 1.227 per kg plus 10 percent ad valorem. Assume shipment weight 5,000 kg for 150,000 CIF (30 per kg average). Specific: 5,000 kg times 1.227 equals 6,135. Ad valorem: 150,000 times 10 percent equals 15,000. Subtotal cheddar: 21,135.

Mozzarella 0406.10.18 over-quota base rate: approximately 1.055 per kg plus 10 percent ad valorem. Assume weight 5,000 kg for 100,000 CIF (20 per kg average). Specific: 5,000 times 1.055 equals 5,275. Ad valorem: 100,000 times 10 percent equals 10,000. Subtotal mozzarella: 15,275.

MPF at 0.3464 percent capped at 634.62 (2026 cap): 634.62.

HMF: not applicable for truck crossing. 0.

Total pre-Section 338 duty and fees: 37,044.62. Effective rate approximately 14.8 percent of CIF.

Post-August 22 Section 338 stack:

All prior base rate duties still apply. Additional Section 338 layer at 50 percent ad valorem under 9903.03.13 on total 250,000 CIF: 125,000.

Total post-Section 338 duty and fees: 162,044.62. Effective rate approximately 64.8 percent of CIF.

Delta on this single shipment: 125,000. On monthly volume of 4 to 6 similar shipments, the New York State foodservice distributor faces 500,000 to 750,000 in monthly Section 338 exposure on Quebec cheese alone.

In-Quota vs Over-Quota Section 338 Interplay

For importers holding a valid USDA FAS cheese TRQ license and entering pre-fill, the Section 338 layer still applies. The in-quota base rate is lower (around 10 to 12 percent ad valorem vs 60 to 100 percent effective for over-quota), but the 50 percent Section 338 ad valorem is a flat additional layer that does not depend on TRQ status.

Worked comparison on the same 150,000 cheddar portion:

In-quota entry (importer holds license, pre-fill): base rate approximately 10 percent ad valorem plus modest specific component of around 0.032 per kg equals approximately 15,160. Section 338 at 50 percent on 150,000 CIF equals 75,000. Total: 90,160.

Over-quota entry (no license or post-fill): base rate approximately 21,135 as calculated above. Section 338 at 50 percent on 150,000 CIF equals 75,000. Total: 96,135.

Delta between in-quota and over-quota with Section 338 layer: approximately 5,975 on the cheddar portion. The in-quota license retains value, but the Section 338 layer flattens the incentive significantly. Pre-Section 338, the in-quota vs over-quota delta was closer to 6,000 out of 21,000 total (approximately 28 percent savings by holding the license). Post-Section 338, the delta is 6,000 out of 96,000 total (approximately 6 percent savings). The TRQ license becomes proportionally less valuable in a Section 338-inclusive world, but still worth holding.

Refund and Deferral Pathways for Dairy Under Section 338

For dairy entries filed during the August 19 to 21 suspension window that got assessed at the Section 338 rate due to ABI validation edit lag, the CAPE Phase 2 PSC in ACE is the primary refund vehicle. See suspension window refund pathway for the PSC mechanics and worked recovery math.

For dairy entries post-August 22 that want to defer or lock the rate: FTZ Privileged Foreign election under 19 CFR 146.41(e) on Form 214 at admission locks the rate as of admission date. But post-August 22 admissions lock at the Section 338-inclusive rate. FTZ is a lock-in-the-rate mechanism, not a rate-avoidance mechanism. Pre-August 19 FTZ admissions with PF election retain the pre-Section 338 rate and can be withdrawn for consumption at the pre-cliff rate.

Bonded warehouse under 19 CFR 19 (Class 3 for commodities awaiting sale) offers rate-at-withdrawal deferral. For dairy shipments withdrawn during the August 19 to 21 suspension window, MFN base only. Withdrawn August 22 or later, full Section 338 stack on top of MFN and TRQ status.

Duty drawback under 19 USC 1313 offers a refund pathway for imported dairy that is subsequently exported (either directly or as a component in a manufactured product). Drawback filed within 5 years of the underlying entry can recover the Section 338 layer for exported portions. Not applicable for domestic-consumption Quebec cheese, but relevant for Quebec cheese used in re-export to Latin America or Asia through U.S. re-export distributors.

Documentation Package for 0406 Entries Post-August 22

At entry summary filing (CBP Form 7501) for 0406 imports from Canada post-August 22, the broker should enter base HTS at 10-digit level (e.g., 0406.90.16.10 for a specific cheddar line) as line 1 on Form 7501 line 30. Enter Chapter 99 heading 9903.03.13 as line 2 on the same Form 7501 line 30. Report the USDA FAS TRQ license number if applicable. Report USMCA preference claim on the base HTS.

Retain: USDA FAS TRQ license (if applicable), USMCA Certificate of Origin or certification statement, commercial invoice with 8-digit HTSUS and Chapter 99 heading annotation, packing list with specific weight by cheese type, USDA APHIS phytosanitary certificate for dairy imports, ABI extract, rate-at-unlading evidence per 19 CFR 141.68, and the July 20 Proclamation copy referencing 9903.03.13 as the operative Chapter 99 heading. Records-retention window: 5 years under 19 USC 1509(a).

The Section 338 Canada dairy layer is a structural cost shock to the Quebec-and-Ontario-to-U.S. cheese trade that USMCA does not offset and TRQ administration does not blunt. For importers running material 0406 volume, near-term pricing pass-through to U.S. foodservice and retail is the operating question through Q4 2026 and 2027.