WTO Sides with U.S. on Canadian Dairy Exports

The U.S has scored a victory in its battle to limit other nations' use of agricultural export subsidies. According to a final ruling issued by a World Trade Organization (WTO) dispute settlement panel, Canada must scale back its use of subsidized dairy exports and allow increased commercial access for fluid milk to its own market.

At the request of U.S. Dairy Export Council (USDEC), International Dairy Foods Association (IDFA) and National Milk Processors Federation (NMPF), the U.S. government had challenged Canada's dairy exporting pricing scheme and market access barriers before the WTO in the fall of 1997.

"The WTO agreed with our contention that Canada is using 'stealth subsidies' to undercut U.S. dairy exports in the international marketplace, and that Canada has closed the door on American companies that want to sell milk there," said Jerry Kozak, CEO of NMPF.

Since 1995, Canada has used a two-tiered export pricing system to exceed dairy product subsidy limits that it had agreed to accept under the WTO agreement. Under the system, Canadian dairy processors pay farmers a higher price for milk used domestically, and a much lower price for milk that is exported—giving Canadian exports an unfair price advantage in world markets. Canada claims that its dairy export price scheme is not a subsidy, and therefore not subject to limits agreed upon in the Uruguay Round.

"By illegally subsidizing its dairy exports over the past three years, Canada has exceeded its WTO limits by a total of US$160 million, said Tom Suber, executive director of USDEC. "Dumping artificially low-priced products on the world market, Canada has undercut U.S. dairy exporters in key markets throughout Asia and Latin America."

The WTO panel has also found that Canada must honor its tariff-rate quota for fluid milk that it consented to in the Uruguay Round. Canada had agreed to allow the import of 64,000 tons of fluid milk annually. However, it has prohibited all commercial trade in fluid milk, claiming it satisfied its quota with consumer purchases crossing the U.S.-Canada border.

Though Canada is expected to appeal the final ruling, U.S. dairy leaders remain confident that the ruling will stand. The appeals process is expected to be completed by mid-summer.

For more information contact Janet Nuzum, vice president and general counsel of the International Dairy Foods Association. Tel: 202-737-4332. Fax: 202-331-7820.