WTO backs NZ in test case on milk

By Brian Fallow

WELLINGTON - The World Trade Organisation has ruled in New Zealand's favour in a critical test case about what constitutes an export subsidy.

New Zealand and the United States took a case to the WTO last year objecting to Canada's "special milk classes" scheme, which discounts the price of milk used in the manufacture of cheese and butter for export.

The WTO dispute panel ruled that that subsidised Canadian dairy exporters in ways which contravene WTO rules. Now the WTO's appeal body has upheld that decision.

Dairy Board spokesman Neville Martin said the ruling would have no immediate or dramatic impact in export markets.

"Its real significance lies in the principle it has established. A clear and strict definition of what constitutes an export subsidy has been confirmed and this cuts down the opportunities for other exporters, much more significant than the Canadians, to do an end run around their WTO obligations."

It was highly probable the Europeans and Americans would have adopted similar schemes if the WTO rules had been interpreted differently, Mr Martin said.

Trade Minister Lockwood Smith hailed the result as proof that the WTO worked.

"The outcome of this case demonstrates the value to a small, export-dependent country like New Zealand of the WTO, which has enforceable rules and does not let economic or political weight dictate."

New Zealand has also asked the WTO to rule on the legality of the US decision to impose tariff rate quotas on imports of New Zealand and Australian lamb.