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Spilt Milk? No, Just Policy Disputes
By Brian Goggin
The United States has
initiated dispute settlement proceedings in the World Trade
Organization (WTO) that may have serious repercussions in the way
many countries administer their dairy programs.
Section 301 of the Trade Act of 1974 enables the United States to challenge the trade policies of foreign governments and implement the WTO dispute settlement framework. The dairy disputes concern two of our most important trading partners and the methods they use to support dairy exports with programs that appear to circumvent WTO limitations on export subsidies.
One was initiated by the U.S. dairy industry against Canada's dairy program, which allows producer revenues from sales of exported products to be "pooled" with sales of domestic products.
The pooling of revenues lets Canada's dairy industry balance lower returns from export sales with higher returns from domestic sales. The system is two-tiered: one set of prices for domestic consumption and another for exports. It allows Canadian processors to compete effectively with lower cost exporters like the United States and New Zealand.
The precedent it sets concerns U.S. exporters even more than the competitive edge. If Canada's system is not found to circumvent its WTO export subsidy commitments, other countries may implement similar programs.
Unfortunately, no significant progress has been made in a series of consultations between the U.S. and Canada so the United States has requested a WTO dispute settlement panel. The panel will investigate whether Canada has violated or circumvented its WTO obligations, and make a judgement to settle the dispute.
In addition, the United States has challenged Canada's failure to allow commercial shipments under its tariff rate quota for fluid milk imports. The dispute settlement process will focus on whether Canada is denying the market access it agreed to provide under its tariff schedule. Such denial of access may be contrary to Canada's WTO commitments.
Another dispute involves the dairy export policies of the European Union (EU), which allow processed cheese to be exported using subsidies for milk powder and butterfat, which are components of processed cheese. The EU is under pressure from WTO limits on cheese but not skim milk powder or butter. By misclassifying processed cheese, the net effect is to extend the amount of cheese that can be exported with subsidies.
Surplus is the underlying cause-- the EU is faced with dairy surpluses that are generally priced too high for international markets because of shrinking export subsidy allowances determined by the WTO and high price supports under its Common Agricultural Policy (CAP).
The United States argues that these component subsidies allow the EU to circumvent its WTO export subsidy commitment for cheese.
The legal procedure for the EU case is similar to that of the Canadian 301 investigation. The EU case was, however, not initiated by the U.S. dairy industry, but by the Office of the U.S. Trade Representative.
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The author is a marketing specialist in FAS' Dairy, Livestock
and Poultry Division. Tel.:(202) 720-4884; Fax: (202) 720-0617;
E-mail: goggin@fas.usda.gov
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