U.S. Wins WTO Case Challenging New Canadian Dairy Export Subsidies.

July 12, 2001

Yesterday, the World Trade Organization (WTO) ruled that Canada's dairy export subsidies are inconsistent with its WTO commitments. The WTO dispute settlement panel found that the steps Canada took to address an earlier adverse ruling on its dairy export practices were insufficient.

The U.S. calculate that Canadian dairy export subsidies result in lost sales by U.S. dairy farmers and processors of up to $35 million per year. Agriculture Secretary Ann Veneman noted that "this decision demonstrates how the rules and disciplines of the WTO protect American farmers from unfair trade competition." U.S. Trade Representative Robert Zoellick also hailed this ruling as "a victory for American dairy farmers and processors."

Besides the direct economic impact, the WTO ruling establishes an important precedent which will help prevent other countries form adopting similar export subsidy programs harmful to U.S. agricultural commodity sectors.

In 1997, the National Milk Producers Federation, the U.S. Dairy Export Council and the International Dairy Foods Association petitioned the Office of the U.S. Trade Representative to challenge Canada's dairy trade practices as inconsistent with its WTO obligations on export subsidies and market access. After bilateral consultations, the U.S. referred its complaint to a WTO dispute settlement panel in February 1998.

In 1999, a WTO dispute settlement panel found that Canada's special milk class system and import restrictions on dairy products violated WTO obligations. Later that year, the WTO Appellate affirmed the panel's finding on export subsidies.

In response to the WTO panel and Appellate Body findings, Canada replaced its special milk class system with a new dairy export program in each province. However, Canada's new measures left unchanged the fundamental aspects of the program found by the WTO to constitute export subsidies. As a result, the United States requested that the WTO review the new provincial programs. The United States argued, and the WTO panel agreed, that the continued involvement of Canadian federal and provincial governments in the provision of low-cost milk to processors for export constituted an export subsidy and that Canada had already exceeded its commitment under the WTO Agriculture Agreement on subsidized cheese exports.

Canada now has 60 days to appeal the WTO panel report to the WTO Appellate Body.