WTO rules Canadian dairy exports illegal

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Published: July 4, 2002

HALIFAX, N.S. – The attempt by Canada’s dairy industry to develop an

export business while protecting most of the Canadian domestic market

from imports was dealt another blow last week when the World Trade

Organization ruled once again that Canadian dairy exports are illegally

subsidized.

While New Zealand and the United States hailed the decision as a

vindication of their four-year WTO challenge, Canada immediately

announced it will continue the fight.

“We will be appealing it,” agriculture minister Lyle Vanclief said June

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26 at a news conference in Halifax. “We do not agree with it. We have

removed government from those decisions on selling into an export

market. That is made between a producer and processor. We will be

appealing it. We have good grounds.”

The WTO trade panel ruled otherwise.

It agreed that Canadian milk sold to processors for export at prices

far below the fixed domestic price is subsidized by the fact that the

government-regulated domestic system exists and keeps the industry

afloat.

The panel said that Canada is exceeding its export subsidy limit.

If the ruling is upheld on appeal, Canada could be hit with trade

sanctions worth as much as $70 million.

Canadian officials say approximately $200 million in export sales are

at issue.

In Auckland, N.Z., trade negotiations minister Jim Sutton said he hoped

Canada would reflect closely on this result and forego any appeal.

“While there is a right of appeal, today’s decision represents the

fifth occasion on which Canada has been unable to demonstrate that its

dairy export pricing regime complies with WTO subsidies disciplines,”

he said in a statement distributed by the New Zealand High Commission

in Ottawa.

“I would hope that Canada will realize this time that the writing is on

the wall and withdraw this illegal support to its exporters.”

Sutton said Canada’s cheap dairy product exports depress world prices

and cost New Zealand farmers up to $80 million annually.

The case started in 1998 when the United States and New Zealand joined

to complain about Canada’s attempts to build an export business. In the

export policy’s first incarnation, provincial dairy boards were

responsible for giving farmers the right to produce outside the

domestic supply for export.

In 1999, the WTO ruled that it amounted to an export subsidy because

farmers used profits from domestic regulated markets to underwrite

export sales made at a loss.

In response, Canada changed its system to exclude marketing boards from

the export business. Farmers who want to sell milk for conversion into

low-priced export products make a deal with processors and do that part

of their business outside the quota system.

The U.S. and New Zealand complained that the changes were not

sufficient.

They won at a trade disputes panel a year ago but last December, a WTO

appeals panel overturned the judgment and ruled that the critics had

not proven their case. However, it did not explicitly say the Canadian

system was trade legal.

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