The Canadian dairy industry will be scrambling this winter to design a new export policy since an international trade panel ruled the existing system violates trade law.
An appeal committee of the World Trade Organization ruled Oct. 13 that the attempt to encourage exports by offering low-priced, “special class” milk to processors is simply a back door way to subsidize exports.
The key ruling was that government-authorized dairy marketing boards cannot be involved in exporting at below domestic prices without it being seen as an illegal export subsidy.
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Dairy farmers now must figure out a way to make cheaper milk available to exporters without involvement of a dairy board.
While the industry and the government rushed to assert that this was not an attack on supply management, a processor official said it will weaken the role of government-sanctioned boards in export trade.
“In my view, this ruling could have an impact on other bodies and boards with government connections that are involved in exports,” said Kempton Matte, head of the National Dairy Council of Canada. “I include the Canadian Wheat Board in that. I’m sure lawyers will be looking at this to see if there are broader implications. I think there may well be.”
At the very least, he said it means processors will be able to contract for cheaper export milk supplies directly with farmers, rather than going through provincial marketing boards.
On the face of it, however, the panel decision settles a narrower issue.
When Dairy Farmers of Canada decided several years ago that expansion of the industry will depend on increasing exports, a system of special class pricing was established by provincial dairy boards.
It made cheaper milk available to processors for export products.
The United States and New Zealand challenged the system before the WTO, arguing these cheap supplies were benefiting from a form of export subsidy, which was restricted in the last world trade agreement. A WTO panel agreed last winter. Canada appealed but lost in last week’s ruling.
Canada will have to figure out how to change the system that affects $40 million worth of export milk.
Since Canada goes into the next round of world trade talks in late November criticizing the export subsidies of others and calling for their elimination, a government official was asked if this loss was an embarrassment, showing Canada saying one thing and doing another. He said it was not because Canada did not think its special class pricing was a subsidy. Now, it has been told differently.
“I wouldn’t see it as an embarrassment,” he said. “It is a normal part of the process.”
Meanwhile, the WTO panel also handed Canada a small dairy victory when it ruled legal the present system of allowing Canada’s minimum access for fluid milk to be filled by cross-border shoppers.
The U.S. had insisted Canada should open its 64,500 tonne minimum-access commitment to U.S. corporations as well as cross-border shoppers.
The WTO said Canada can administer that minimum access as it sees fit.
