The World Trade Organization’s recent ruling that EU cheese import tariffs in the United States were illegal was a victory for the U.S., but that hardly means American products are now going to be granted free access to the world’s largest market. Many U.S. farmers want open markets for their agricultural products, but many industries — including the dairy industry — have been working overtime for decades to restrict the access of foreign goods into their markets. Last week’s ruling by the WTO’s Dispute Settlement Body found that “certain EU import quotas and bans in the U.S. dairy industry have been found to be in breach of WTO rules.” The ruling came after a complaint by the United States against EU cheese import quotas, and as long as the United States had sufficient political will, the rest of the WTO could be following in suit. In an article published by E-Commerce Direct in June 2014, Daniel Costa, vice president for international policy at the Information Technology Industry Council (ITIC), stated, “the American dairy industry has been working to open access to dairy products in key markets. These concerns were expressed by trade policy officials during a hearing at the U.S. Senate in April and also in the World Trade Organization.” According to WTO documents, “in 2002, the USA exported 9,964.1 million kilograms of cheese products, while the EU exported 27,000.3 million kilograms, i.e. almost three times more.” In fact, EU cheese exports were estimated to be 15 percent of U.S. cheese exports, but U.S. farmers wanted a piece of the action. U.S. Dairy Farmers Sue to Prevent Quotas Unfortunately, the European Union wasn’t willing to cede to U.S. farmers demands for greater access to its markets and decided to pursue sanctions against the United States, seeking $1 billion in retribution and seeking WTO mediation over the dispute. The United States won the initial complaint, but in early March, the EU took the case to the WTO Dispute Settlement Body (DSB) to have the issue resolved at an international level. The recent ruling from the DSB makes it clear that the EU quotas imposed on the U.S. market are illegal under WTO rules, but the EU did not accept the ruling and decided to pursue its case in the WTO. After years of trying, this WTO ruling should be music to U.S. farmers’ ears, but it will only mean something if other trading partners follow suit. The United States will never be able to achieve full access to the European market unless it goes about things differently. The United States’ Dairy Industry Faces Major Losses in California The U.S. dairy industry has a long history of trying to expand into foreign markets. The International Dairy Foods Association (IDFA), a trade group representing more than 11,000 U.S. dairy farmers, has been at the forefront of those efforts for the past several decades. According to one study, “the U.S. dairy industry loses $15 to $20 billion annually by being unable to fully tap into export markets.” One major problem is that the United States does not have enough volume of dairy to achieve foreign market access. The United States has 2.5 percent of the world’s total arable land, but more than 20 percent of the world’s land in production. Therefore, the United States has the capacity to produce more dairy than any other country, but has just a small fraction of the world’s arable land dedicated to dairy production. This problem was on display when U.S. dairy exports fell in the wake of the Doha trade talks failure and Europe imposed a massive quota on U.S. cheese imports. In response, a number of U.S. dairy industry groups, including the IDFA, joined the Cheese Importers Network, a trade association dedicated to securing “freedom to export U.S. dairy products abroad.” A second problem is that it is difficult to sustain high rates of returns from dairy products in Europe, as European regulations, including EU standards, restrict U.S. companies from selling full-fat dairy products in the region. However, it is not only full-fat milk products that the U.S. dairy industry is having difficulty selling in Europe. According to a report on the WTO case, The U.S. and EU are in a state of divergence over how to classify cheese for trade purposes, with the EU restricting U.S. exports of certain types of cheese on the basis of origin — by virtue of being made with unpasteurised milk — while the U.S. asserts that EU restrictions that are based on this type of origin are discriminatory. In another WTO case, the EU is challenging the United States over how to treat American dairy products under the General Agreement on Tariffs and Trade (GATT) and the WTO. The EU asserts that the United States has discriminated against its products on the grounds that they were not fully treated under GATT and the WTO. The U.S. position is that many European products qualify for non-tariff trade barriers under the WTO’s “most favoured nation” clause. What makes European products “non-tariff” is a system called “voluntary export restraints,” which allow some nations to effectively manipulate trade through informal collusion to limit imports. The Cheese Importers Network and IDFA are working hard to protect the U.S. market from discriminatory rules imposed by the EU, and they are fighting to redefine the current definitions of “dairy products” and “full-fat” milk products in the WTO to exclude products made with pasteurized milk. With the WTO ruling in favor of the U.S., the time is ripe for the IDFA to start pressing Congress to pass the Dairy Export Incentive Program (DEIP), which would help offset the increased market access costs for U.S. dairy farmers in order to take advantage of this favorable ruling. However, the passage of the DEIP will require the support of those who benefit from the discriminatory GATT rules, which were first implemented in the mid-1980s. It is important that those whose interests are threatened by the WTO ruling work together with those impacted by the new rules in order to ensure the Dairy Export Incentive Program becomes a reality. Conclusion As noted above, the EU’s refusal to cede to American demands for market access on their own soil has had the effect of forcing the United States to work around the world’s trading powers to establish a market for U.S. dairy products. If we want to gain access to foreign markets in general, we need to start fighting tooth and nail against “voluntary export restraints” and “origin-based” regulations. The WTO’s recent ruling is a victory for the U.S. dairy industry, but if the EU doesn’t act on the WTO’s ruling, U.S. dairy farmers will continue to lose markets throughout Europe. It is important to remember that the loss of just one market is a loss to the United States as a whole. A report by the International Trade Administration in October 2013 predicted that “U.S. agricultural and manufacturing exports are expected to remain strong in 2014, following the most productive year since 2008. U.S. net farm income and agricultural production will continue to be adversely affected by persistently high and volatile grain prices in global markets. In the longer term, with demand slow to rebound from past recessionary declines and a weak world economy, global food commodity prices will remain volatile for several years.” If the United States is to fulfill President Obama’s goal of doubling U.S. exports by the end of the decade, we must not limit ourselves to working within our current global framework. The United States must demand an end to the arbitrary GATT restrictions imposed on our farmers in order to ensure a level playing field for all U.S. exporters. Photo