Canada Agrees to Scale Back Dairy Exports

December 28, 1999

Canada has agreed to reform its dairy export and import programs to comply with a ruling earlier this year from the World Trade Organization. The ruling found Canada had not lived up to the market access and export subsidy provisions to which it had agreed.

Canada will limit export subsidies on all dairy products and remove its current $20 value restriction on imports of fluid milk as of Feb. 1. Canada will implement immediately limits on export subsidies for butter, skim milk powder and a variety of other milk products, according to the International Dairy Foods Association, National Milk Producers Federation and U.S. Dairy Export Council.

For cheese export subsidies, Canada will reduce the number of permits it issues during the rest of the current WTO marketing year (ending July 31, 2000) and will stop issuing them as of March 31, said IDFA, NMPF and USDEC.. Total subsidized cheese exports in the current marketing year will be limited to 20,433 tons; for 2000-01, Canada must be in full compliance with limits under the TWO for all dairy products, including cheese.

The terms of the agreement followed a final ruling issued by the WTO appellate body in October that held that Canada's dairy export-pricing scheme was a subsidy program and subject to limits specified in the 1994 WTO agreement. Canada had appealed a dispute settlement body verdict that the appellate body upheld.

The dispute began in 1995 when Canada established a two-tiered pricing system based on export performance to exceed dairy product subsidy limits it had agreed to accept in the Uruguay Round. Under that pricing scheme, Canadian dairy processors paid government-managed marketing boards a higher price for milk used domestically and a discount price for milk to be used in products for export.

U.S. dairy interests said that gave Canadian dairy exports an unfair price advantage in world markets. Canada claimed it was not a subsidy and therefore not subject to the Uruguay Round limits.