What Are Some of Our Challenges?

Despite the important achievements of the Uruguay Round agreements, extensive subsidies, high tariffs and numerous non-tariff barriers remain in most countries, inhibiting or prohibiting competition from more efficient dairy product competitors. Comparison of tariff barriers in the dairy sector is made difficult by the fact that tariff rates are often not ad valorem rates, but rather specific or compound rates whose relative value varies depending on market prices.

Tariff-rate quotas (TRQs) are prominent in many countries that are major dairy producers and had import quotas in force prior to the implementation of the Uruguay Round agreements. In most of these countries, the over-quota tariff rate is a prohibitive rate. In addition to the size of the tariff rates, import licensing rules and procedures associated with tariff-rate quota administration often pose additional barriers to effective market access even for the limited in-quota quantities.

In addition to tariff barriers, an assortment of other regulatory barriers can also impede U.S. dairy exports in many markets, including unreasonable packaging and labeling requirements, pre- and post-shipment testing and inspections, mandatory recipe and manufacturing information, shipments held at port of entry for lab testing or other sanitary examinations, unreasonably short shelf-life provisions, pre-import registration and licensing requirements, and limitations on internationally approved colors and food additives.

Finally, trade-distorting subsidies in the European Union and Canada confer substantial unfair advantages to their dairy production and exports, depressing world market prices and stealing market share in world dairy trade away from less subsidized competitors. Complete elimination of export subsidies is the first priority of the U.S. dairy industry in the World Trade Organization (WTO) agricultural trade negotiations.

Discussed below are some examples of the kinds of tariff and non-tariff barriers our dairy industry members have encountered in select markets.

Canada

Canada's dairy market is one of the most highly protected dairy markets in the world. Canadian imports of dairy products have been strictly controlled to protect high internal price structures. Under the Uruguay Round agreement, Canada established TRQs for dairy products. In-quota amounts, however, are quite small and most over-quota tariff rates on dairy product imports approach 240%. Such triple-digit tariff rates effectively close out Canada's market to imports.

For some of our members, the tariff structure on Canadian dairy products prohibits them from realizing production efficiencies that a united U.S.-Canada market would give them. While the 251.5% over-quota tariff on yogurt products is prohibitive, our yogurt-producing members have plants in Canada and serve that market from Canadian plants, avoiding the duties. Even so, the tariff severely restricts the companies' industrial flexibility. These companies are not able to rationalize production lines among Canadian and U.S. plants, since any product to be sold in the Canadian market must be produced at a Canadian plant.

Asia

Per capita milk consumption in Asia has risen, and dairy products are being integrated into the Asian diet. As household income increases, the demand for Western-type foods including dairy products has increased.

Japanese cheese consumption and cheese imports, for example, have increased rapidly in the last several decades. U.S. exporters have been relatively successful in gaining market share not only in cheese, but also dried whey and lactose through carefully planned and executed marketing campaigns. However, there would be even greater sales potential if the quota tonnage allocations among dairy products were greater.

European Union (EU)

During the Uruguay Round, the EU committed to replacing its quotas with TRQs, but the in-quota tariff rates are still high enough to effectively keep out U.S. cheese and yogurt products. Of even greater importance in terms of EU practices, however, is the extensive use of export subsidies in their dairy regime. Although the EU dairy sector has undergone some reform, it continues to receive large amounts of export subsidies. In fact, in 2004, Europe's dairy sector was the biggest recipient of EU export subsidies, receiving nearly €1.5 billion in aid.

One of the goals of the current round of WTO talks is to eliminate the use of export subsidies. During the 2005 WTO Ministerial in Hong Kong, the European Commission pledged to abolish all export subsidies by 2013. This was welcomed by other WTO members. However, since the talks have stalled, little progress has been made in this area of negotiations.

How Do We Address These Challenges

Regional and bilateral free trade agreements provide important trade-opening opportunities and the ability to resolve some trade barriers. IDFA believes that the WTO Doha Development Agenda negotiations provide the best and most important opportunity to strengthen international trade rules to remove artificial advantages or protections and truly open markets for U.S. dairy products and dairy-containing foods.

The goals of the WTO Doha Development Agenda include eliminating export subsidies, reducing domestic subsidies and increasing market access for agricultural products. IDFA has been extremely engaged in promoting these ambitious objectives to diminish foreign market barriers to U.S. exports of dairy products.

Posted February 2007