WASHINGTON - The
Office of the U.S. Trade Representative and the U.S. Department of Agriculture
today announced an important settlement with Canada resulting in major revisions
to Canada's subsidy programs for its dairy exports. The United States recently
won a World Trade Organization (WTO) case that ruled that Canada was continuing
to provide illegal subsidies to its dairy industry. As a result of today's
settlement, Canada has agreed to eliminate these subsidies. Consequently, Canada
will no longer export subsidized dairy products to the United States and will
significantly limit subsidized dairy exports destined to third countries.
"This is great
news for American dairy farmers and processors. The playing field has been
leveled. The Canadians have agreed to comply with the WTO decision and will stop
exporting subsidized dairy products to the United States," stated U.S. Trade
Representative Robert B. Zoellick. "I welcome Canada's quick action to comply
with the WTO's most recent ruling, and fully expect Canada to abide by its WTO
commitments on dairy exports."
subsidies have hurt U.S. producers and we are pleased that the WTO process has
resulted in a positive solution," said Veneman. "This agreement will allow our
producers to more effectively compete in the marketplace."
Over a number of
years, the United States has argued before the WTO that Canada's dairy programs
provided export subsidies to its dairy processors and farmers above the level
that Canada committed to in the WTO. In December 2002, the WTO ruled in favor of
the United States confirming that Canada was continuing to provide illegal
export subsidies with the sale of discounted milk to Canadian processors under
its Commercial Export Milk (CEM) program. Canada's settlement of the case is
also with New Zealand, which joined the United States in challenging Canada's
dairy regime in the WTO.
Key elements of
the settlement between the United States and Canada are:
1) By April 30,
2003, all Canadian provinces eliminated the CEM program, which the WTO ruled as
providing export subsidies. The federal government of Canada also is making
consequential amendments to its regulations related to CEM.
prohibited any new contracts under the CEM program as of December 31, 2002,
thereby limiting the amount of subsidized dairy exports for the remainder of the
current marketing year, ending July 31, 2003.
3) As of May 1,
2003, all deliveries of CEM milk ceased, and there will be no exports to the
United States of any subsidized milk or cream.
4) Canada ceased
issuing permits for the export of dairy products under its Special Milk Class
5(d) for the remainder of the current marketing year.
5) For the
current marketing year, Canada will ensure that subsidized exports of butter and
skim milk powder stay within the level established in the WTO.
6) Canada will
exceed its WTO commitment level for subsidies provided to exports of cheese and
other milk products by a limited amount in the current marketing year. Due to
the elimination of the CEM program, however, as of August 1, 2003, no subsidized
dairy exports will enter the United States, and Canada also will limit its
subsidized dairy exports to other foreign markets to the level established in
As part of its
Uruguay Round WTO obligations, Canada agreed to specific limits on export
subsidies for dairy products. In 1995, Canada replaced its subsidy payments on
all dairy exports, which were financed by a levy on dairy producers, with a new
system. However, this system let Canadian processors buy lower-priced milk and
use it to make cheese and other dairy products for export. Canada claimed the
new system was no longer an export subsidy.
In 1997, the
National Milk Producers Federation, the U.S. Dairy Export Council and the
International Dairy Foods Association asked the U.S. Trade Representative to
challenge Canada's dairy trade practices as inconsistent with its WTO
obligations on export subsidies. After bilateral consultations, the U.S.
referred its complaint to a WTO dispute settlement panel in February 1998. New
Zealand joined the U.S. challenge to Canada's export subsidies.
In 1999, a WTO
panel and the Appellate Body found that Canada's special milk class system,
which provides discounted milk for export, was an export subsidy. The WTO panel
and the Appellate Body also found that Canada was violating its WTO Agreement on
Agriculture by shipping more subsidized exports than it had agreed
In response to
the panel and Appellate Body reports, Canada introduced its "commercial export
milk" scheme. The United States and New Zealand charged that Canada's CEM
program did not bring Canada's export subsidy system into conformity with its
WTO obligations. In January 2001, the United States and New Zealand asked that a
new WTO dispute settlement panel review the new Canadian system. That panel
agreed in July 2001 that Canada's CEM program provided an export subsidy in the
form of discounted milk to Canadian dairy processors.
the panel's findings. In December 2001, the Appellate Body said it could not
reach a decision because it did not have enough information. The United States
and New Zealand then requested another WTO panel to review the additional
information requested by the Appellate Body. In July 2002, the panel concluded
that Canada was continuing to provide illegal export subsidies to Canadian dairy
processors with the sale of discounted milk under the CEM program. In December
2002, the Appellate Body affirmed that panel's findings. In January 2003, the
WTO Dispute Settlement Body adopted the panel and Appellate Body