The Milkweek
The farmer's milk marketing report

Issue No. 257
December 2000

U.S. Trade Proposal a Danger to Farm Milk Checks

by Peter Hardin

As if ten-dollar milk and dollar cheese weren't pain enough, Uncle Sam has new plans in the pipeline to give dairy farmers another swift kick in the pants.

This new assault on dairy farmers' wallets comes via the new U.S. ag negotiating proposal and the tariff rate quota administration plan submitted recently at the World Trade Organization in Geneva, Switzerland.  Details of the new proposal, obtained from the U.S. Dairy Export Council web site (www.usdec.org) show the U.S. once again naively leading with its chin on agricultural trade reform.  Cheering us on are New Zealand, Australia, Argentina and other low-cost dairy export competitors who will benefit from the U.S. plan at the expense of American dairy producers.

USDEC, an export promotion group funded primarily by dairy farmers' mandatory promotion check-off dollars, has been among the most gung-ho members of the free trade lobby.  It includes such familiar faces as Tom Camerlo, Elwood Kirkpatrick, Herman Brubaker and other prominent National Milk Producers Federation figures.  But even some of these free-trade types are reportedly queasy about major parts of the U.S. position dealing with import access.

The U.S. proposal seeks to substantially reduce or eliminate a broad range of trade-distorting programs, including domestic income supports, export subsidies and 'market access."  These programs have traditionally been used by both developed and developing nations to stabilize their rural economies, keep farmers on the land (read: not rioting) and ensure national food security.  The plan continues and accelerates the rush to globalization pursued by the last three administrations in Washington.

Some observers here are particularly disturbed about our government's eagerness to give away the store on market access.  Market access deals with tariff and nontariff barriers that restrict or otherwise discourage imports of cheese, butter, milk powder and other dairy products into a given country.

Observers warn that the Clinton Administration's market access plan is a blueprint for disaster that would unilaterally surrender the U.S. dairy market to unlimited imports while gaining little if anything in return.

The plan would "liberalize" market access by effectively gutting the few restrictions currently remaining on dairy imports into this country.  Those restrictions, called tariff rate quotas, or TRQ's, are the tattered remnants of long-standing Section 22 import quotas eliminated by the Uruguay Round of the GATT, the predecessor of the WTO.

More dairy imports

TRQs restrict imports by imposing a very high tariff on "over quota" dairy imports, which exceed a certain negotiated "in quota" base level.  The U.S. seeks to sharply reduce the high over quota tariffs on excess imports while greatly expanding the base volume level of in quota imports permitted at no or low duty levels.

"The U.S. objective for these WTO negotiation on agricultural market access opportunities for all countries and to make more uniform the level and structure of tariff bindings for all countries in all products," the proposal says.

It proposes "to subject all tariff-rate quotas to substantial increases through progressive implementation of annual commitments over a fixed period."  The plan further seeks "to establish disciplines to improve functioning of tariff-rate quotas, including specific mechanisms that trigger when tariff rate quota fill remains below a fixes level."

The "trade-speak" means that the U.S. is willing to allow much greater levels of dairy import access to a wide range of countries by substantially reducing our TRQs.  And, if for some reason dairy imports don't reach the maximum levels ("fill rates") allow by law, they will find ways to help make sure imports reach their target levels.

Bottom line for dairy farmers:  imports go up sharply, dampening any hopes for recovery of depressed cheese markets and milk checks.  With imports as a ceiling, U.S. prices may fall even more, resulting the ton "convergence" with world market prices that USDEC, National Milk, E. Linwood Tipton and Jim Tillison advocated in a processor-oriented "white paper" issued in July 1999.

"Non-quota" loophole already killing us

The proposal also ignores the fact that our existing dairy import barriers already have loopholes big enough to let in shiploads of low-cost, non-quota imports of milk protein concentrate and casein with virtually no restrictions.  These unrestricted milk protein imports are at the center of a major political firestorm ignited earlier this year by the National Cheese Institute's dangerous proposal to allow the use of dry ultra filtered milk in U.S. natural cheese.

In return, U.S. negotiators believe other countries will drop their import barriers and provide export opportunities for American dairy products, resulting in a win-win situation for everyone involved.

That theory holds that these actions, combined with the elimination of trade-distorting export subsidies and farm income supports, will bring prosperity to all.  Prosperity for whom? This economic theory ignores reality.  Reality includes a host of factors like currency exchange rate fluctuations, the risk of dairy being sacrificed in negotiations for gains in other agricultural or non-agricultural sectors, and the lack of meaningful dairy export market opportunities throughout much of the world, where many consumers lack the income and stomach (literally, with lactose intolerance) to become paying customers.

Those realities were explored at a round table meeting for the agricultural press held in late September in Madison, Wisconsin by the Dairy Trade Coalition.

That meeting looked closely at the costs vs. the benefits of free trade for dairy farmers.  The dialogue raised serious doubts about who American dairy farmers could possible be better off by opening our relatively strong dairy market to New Zealand in exchange for access to markets like Vietnam.

The meeting also revealed that dozens of agricultural and social programs important to American farmers and many other citizens can and will be challenged at the WTO if we continue down this road.  The U.S. proposal received a mostly hostile reception from the dozen or more ag reporters there who see through the dense fog of free trade propaganda put out by global corporate agribusiness and their surrogates in Washington and Geneva.

The Dairy Trade Coalition event has spurred a vigorous debate about the wisdom of the U.S. negotiating proposal.  It also touched a raw nerve, putting USDEC head Tom Suber very much on the defensive.  Apparently, Suber and his allies don't appreciate farmers getting the other side of the story in the trade debate.  Suber did, however, admit in a Cheese Reporter opinion piece that dairy exports will NOT raise our milk prices.

Free traders backpedaling hard

Some industry figures who led farmers down the primrose path of free trade are now backpedaling hard to cover their butts as angry dairymen increasingly make the connection between today's deeply depressed dairy markets and trade liberalization.  Michigan Milk Producers President Elwood Kirkpatrick, USDEC President Tom Suber, and NMPF Trade Policy VP Jaime Castaneda, recently sent a letter urging U.S. negotiators to apply the brakes on certain TRQ-related issues.

Their October 6 letter is remarkable for its sharp contrast with their groups' earlier free trade "white paper" and the way they now appear to seriously question the most recent U.S. TRQ administration proposal.

"Since the Uruguay Round, the United States has been particularly impacted by over-quota imports because of our relatively low over-quota tariffs when compared to other protected markets.  Supplying countries include those that use State Trading Enterprises and other unfair trading practices.

Indeed, we have seen substantial out-of-quota imports of butter and cheese entering our markets at times of only moderate domestic price strength," the NMPF-USDEC letter said.

"If the U.S. calls for substantial reduction of out-of-quota duties under the TRQ administration, the U.S. dairy industry will face an open market, while other countries with significantly higher tariffs would still enjoy those TRQ benefits.  Therefore, we respectfully request that you strike the entire reference to substantially increasing TRQ quantities and substantially reducing out-of-quota duties," the letter said.

Son of Flanagan?

To those of us old enough to remember, the U.S. proposal smells like the infamous "Flanagan Report."  The Flanagan Report, a secret Nixon Administration plan unearthed almost 30 years ago by then-U.S. Senator Hubert H. Humphrey, detailed "Tricky Dick's" secret plan to restructure the U.S. dairy industry.  The Flanagan Report called for trading away access to about 20% of the U.S. manufactured dairy product market, importing cheese, butter and ice cream mix while maintaining domestic production for the fluid market only.

Fortunately, the Flanagan Report was beaten by a courageous Upper Midwest senator and angry dairy farmers who saw they were being "traded away" by Nixon.  The U.S. plan, however, could become reality of dairymen and th4 few friends they have left inside and outside the Washington Beltway don't dig in their heels and fight.  Then and now, access to U.S. diary product markets is the big item on the free traders' agenda.  Beware!

copyright © 2000, Milkweed