Dairy Disputes in North America: A Case Study

1. Dairy Disputes in North America: A Case Study Tom Cox University of Wisconsin-Madison Danny Le Roy The University of Lethbridge Ellen Goddard University of Melbourne

2. Introduction • Analyses of three disputes • Comparison of US and Canadian dairy policy • Summary

3. Comparison of US and Canadian Dairy Policies: Similarities • Dairy versus Total Agricultural Producer Support: OECD PSE Measures. • Border Protection: • TRQ’s: Quotas, Within and Over Quota Tariffs. • Export Subsidies. • Intervention Prices/Price Supports. • Classified Pricing. • Provincial versus Federal/California MMOs. • Regionalism !!!

4. Comparison of US and Canadian Dairy Policies: Key Differences • Milk Production Quotas. • Basis for Two-Tiered Export Pricing via Class Vd/Ve. • Clever Way to “Buy Off” Pressure to Increase/Eliminate Quotas ??? • But, via WTO Ruling, Not Clever Enough !!! • Difference with US Classified Pricing ??? • US Pricing Not Targeted to Export Market !!! • Dynamic Growth versus Stagnant Quota Industry Implications ??? • Level of Protection and Domestic Pricing.

5. OECD Producer Subsidy Equivalents (%)

6. OECD Producer Subsidy Equivalents (%)

8. GATT Increased Import (Quota) Access

9. GATT Import Tariff Reductions

10. GATT Reduced Subsidy Commitments

11. US/Canada Intervention Prices

12. Dairy Disputes • US typically initiates action against Canada • Ice cream and yoghurt • Conversion of import quotas to tariffs • Canadian classified pricing

13. Ice Cream and Yoghurt • Background • CUSTA • Consumption trends • Action • Import Control List • GATT panel • Outcome • Import controls converted to tariffs

14. Ice Cream and Yogurt • Evidence of the costs • Imports of Ice Cream into Canada 1994-98

15. Ice Cream and Yoghurt

16. Ice Cream and Yogurt • Evidence of Costs • Imports of yoghurt into Canada 1994-98

17. Ice Cream and Yoghurt

18. Tariffication • Background • CUSTA, NAFTA, GATT and WTO • Article XI.2.c • Action • Import quotas converted to tariffs • NAFTA challenge • Outcome • Tariffication conformed fully with NAFTA

19. Tariffication • Evidence of costs • 1$ billion (United States Dairy Export Council) • Meilke, Sarker and Le Roy (1998) • Welfare gains (C$331 m) • gains to consumers and taxpayers larger than losses to producers

20. Canadian Classified Pricing • Background • Levies to fund Canadian Exports • Special Milk Classes Scheme • Action • US, NZ claimed new CDN pricing system subsidizes exports (5d & 5e) • WTO panel • Outcome • Panel ruled in favour of the complainants • 5d/5e in violation of WTO Agreement on Agriculture Articles 9.1(a) and 9.1(c)

21. Canadian Classified Pricing

22. Canadian Classified Pricing

23. Canadian Classified Pricing

24. Canadian Classified Pricing

25. Canadian Classified Pricing

26. Canadian Classified Pricing

27. Canadian Classified Pricing • Costs • Loss of millions in sales • through exports • domestic prices • Increase (maintain ???) US-Canada dairy trade tensions. • Increase quota management tensions • Need to decrease production (enforce quotas) • Or WTO legally increase exports • Rock and a hard spot ??? • US MMO relevance ???

28. US Classified Pricing

29. Canadian Classified Pricing

30. US Classified Pricing

31. US Classified Pricing

32. US Classified Pricing

33. US Classified Pricing

34. Canadian Classified Pricing

35. Summary • Policies similarities, differences • Case studies • Yogurt & Ice Cream • Tariffication • Special Class Pricing • Economic Evidence • Full World Dairy Sector Deregulation; US MMO Deregulation. • A US-Canada dairy trade liberalization: • work in progress ….