Fight against dairy subsidies not over

By PHILIPPA STEVENSON

New Zealand expects to continue challenging a Canadian dairy support scheme despite a setback at the World Trade Organisation.

The WTO's appellate body declined to rule on New Zealand's complaint that Canada was providing illegal export subsidies to its dairy industry.

Trade Negotiations Minister Jim Sutton said the appellate body felt it had insufficient information.

However, the decision left the door open to New Zealand and its co-complainant, the United States, to pursue further proceedings.

"While we need to study the ruling closely, our preliminary view is that we will continue the legal challenge."

The case was important because Canada's export subsidies cost New Zealand about $80 million a year by depressing world dairy prices.

"That's more than $5500 per year for each New Zealand dairy farmer."

Worldwide, export subsidies on dairy products are estimated to top $4.5 billion. Their axing would cause a substantial rise in global dairy prices.

"It's costing farmers hundreds of thousands of dollars in returns every year," said Fonterra spokesman Neville Martin.

The dispute with Canada concerns a dairy export scheme devised to replace a scheme already ruled illegal by the WTO in 1999.

A disputes panel ruled in favour of the New Zealand and US challenge this year.

"While the appellate body disagreed with some aspects of the panel's legal analysis, [it] made it clear that it was not finding that the Canadian measures were consistent with Canada's WTO obligations.

"This is not a victory for Canada - far from it," Mr Sutton said.

It was important New Zealand saw the process resolved so the integrity of WTO rules on export subsidies was not undermined.

"The WTO dispute settlement mechanism has proved extremely valuable for New Zealand.

"It has enabled better access for our butter to Europe and the removal of unjustified restrictions on our lamb exports to the US. It has also confirmed our challenge to Canada's original dairy export scheme, and protects our right to pursue a further challenge to the replacement scheme."

After the earlier milk price support scheme was ruled illegal, Canada introduced a new category of milk for export processing known as "commercial export milk" (CEM).

In contracts settled ahead of production, Canadian producers can sell any quantity of CEM to Canadian processors for export processing. Sales of CEM do not require a quota, or any other permit, from the Canadian Government, and processors pay returns direct to farmers.

New Zealand argued, however, that Canada's new measures were "payments" under the WTO agriculture agreement because "producers only sell and negotiate prices for CEM because they are prevented from selling that milk into the domestic market."

Processors benefited from an artificially constructed market which provided them with milk for export at prices lower than those for the domestic market, New Zealand argued.

"Should Canada's argument on 'separate markets' be accepted, it would allow [WTO] members with domestic supply management schemes to evade their export subsidy commitments by simply creating a 'separate' artificial market through which processors for export would have access to inputs at subsidised prices."