USDA Must Adjust Butter Import Tariffs

October 2, 2001

The recent sharp decline in U.S. butter prices is evidence that the federal government should exercise its right to adjust the tariffs on imports of butter and butter oil, according to the National Milk Producers Federation (NMPF).

In a letter to USDA Under Secretary J.B Penn, NMPF asked the department to invoke immediately import safeguards on two types of dairy imports which would increase tariffs on butter and butter oil, thereby reducing the imported products' ability to lower domestic prices for farmers.

Since late August, U.S. wholesale butter prices have declined nearly 50 cents per pound. NMPF says that price decline can be attributed to "imports of butter, butter oil and butter substitutes during July and August," which, due to their surging volume, "reduced U.S. dairy farm income by $70 million during those two months by lowering butterfat prices in the domestic market," NMPF Chief Executive Officer Jerry Kozak wrote in a letter to USDA.

"We believe that USDA must exercise our legitimate rights under the World Trade Organization to shield our domestic producers from excessive and unfair imports. Invoking the safeguard is well within the Department's legal province and is fully consistent with our WTO commitments. If the administration is committed to expanded trade, it must also be committed to fair trade," the letter said.

During the first seven months of 2001, butter imports have exceeded the WTO safeguard trigger level by more than 100%, and are continuing to grow at a rapid rate, says NMPF. Butter imports through August totaled 37.4 million pounds, more the double the safeguard trigger level of 18 million pounds. For butter oil and butter substitutes, the safeguard trigger level of 17.2 million pounds has been exceeded by 3.7 million pounds.

NMPF said that "a large proportion of these additional imports has consisted of subsidized products from the European Union and elsewhere." As a result of the manner in which the 1994 WTO negotiations established dairy tariffs, "U.S. dairy producers are under much more pressure from imports than their counterparts in other countries, who have yet to experience imports above tariff rate quota levels, much less above safeguard trigger levels. This is just the type of distortion that the special safeguard is intended to address," Kozak wrote in the letter.

The import safeguard invoked by NMPF would involve an adjustment of the duties on butter under the WTO volume quota import system. The new duties already have been determined in Chapter 99 of the U.S. Harmonized Tariff Schedule. The WTO safeguard permits for an increase of one-third in the ordinary tariff (over-quota rate). The new, higher rate for butter would be an additional 23.3 cents per pound, bringing the total tariff to $1.027 per pound. The additional duty on butter substitutes of 30.4 cents per pound would bring their total tariff to $1.256 per pound.

In addition to the surge in butter products, imports of American-type cheese are nearly at the safeguard trigger level of 22.4 million pounds, and NMPF asked the USDA to impose a tariff safeguard once imports of those products have reached their ceiling.