Agreement closes road into U.S. for subsidized Canadian dairy exports

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WASHINGTON – The office of the U.S. Trade Representative and the U.S. Department of Agriculture announced a settlement May 9 with Canada resulting in major revisions to Canada’s subsidy programs for its dairy exports.

The United States recently won a World Trade Organization case that ruled Canada was continuing to provide illegal subsidies to its dairy industry.

As a result of the settlement, Canada has agreed to eliminate these subsidies.

Consequently, Canada will no longer export subsidized dairy products to the United States and will significantly limit subsidized dairy exports destined to third countries.

“The playing field has been leveled,” said U.S. Trade Representative Robert B. Zoellick. “The Canadians have agreed to comply with the WTO decision and will stop exporting subsidized dairy products to the United States.

U.S. Agriculture Secretary Ann M. Veneman said the agreement will allow U.S. producers to more effectively compete in the marketplace.

The argument. Over a number of years, the United States has argued before the WTO that Canada’s dairy programs provided export subsidies to its dairy processors and farmers above the level that Canada committed to in the WTO.

In December 2002, the WTO ruled in favor of the United States, confirming that Canada was continuing to provide illegal export subsidies with the sale of discounted milk to Canadian processors under its Commercial Export Milk (CEM) program.

Canada’s settlement of the case is also with New Zealand, which joined the United States in challenging Canada’s dairy regime in the WTO.

Due to the elimination of the CEM program, as of August 1, 2003, no subsidized dairy exports will enter the United States, and Canada also will limit its subsidized dairy exports to other foreign markets to the level established in the WTO.

Background. As part of its Uruguay Round WTO obligations, Canada agreed to specific limits on export subsidies for dairy products.

In 1995, Canada replaced its subsidy payments on all dairy exports, which were financed by a levy on dairy producers, with a new system. However, this system let Canadian processors buy lower-priced milk and use it to make cheese and other dairy products for export.

Canada claimed the new system was no longer an export subsidy.

In 1997, the National Milk Producers Federation, the U.S. Dairy Export Council and the International Dairy Foods Association asked the U.S. Trade Representative to challenge Canada’s dairy trade practices as inconsistent with its WTO obligations on export subsidies.

A WTO dispute settlement panel agreed in July 2001 that Canada’s CEM program provided an export subsidy in the form of discounted milk to Canadian dairy processors.

Appealed. Canada appealed the panel’s findings. In December 2001, the appellate body said it could not reach a decision because it did not have enough information.

The United States and New Zealand then requested another WTO panel to review the additional information requested by the appellate body.

In July 2002, the panel concluded that Canada was continuing to provide illegal export subsidies to Canadian dairy processors with the sale of discounted milk under the CEM program.

In December 2002, the appellate body affirmed that panel’s findings and in January 2003, the WTO dispute settlement body adopted the panel and appellate body reports.

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