The Dairy Trade Coalition
   Saving the Spotted Cow for Generations to Come

Dairy Import Assessments

Introduction

The 2002 Farm Bill contains provisions sponsored by Representative Tammy Baldwin (D-WI) and Senator Russell Feingold (D-WI) which would require dairy product importers to pay a promotional assessment equal to the 15¢ per hundredweight that domestic dairy producers are now paying. At first blush, the proposition sounds reasonable and the legislation may ultimately prove to be a good idea. However, there may be significant unintended negative consequences that should be addressed prior to implementation.

Accordingly, the DTC recommends that implementation be delayed until after public hearings are held to make a prudent determination regarding the unintended negative consequences and periodic review and initial referenda be held to determine the continuation of the checkoff programs. This approach is consistent with resolutions and policy statements by the Wisconsin Farm Bureau, Women Involved in Farm Economics (WIFE), individual members of dairy promotion boards including the Wisconsin Milk Marketing Board (WMMB) and the National Dairy Board (NDB), and other leading dairy officials and producers.

Major Concerns

There are four majors concerns that the DTC believes should be addressed by public hearings.

1. The likely impact importers will have on NDB operations since they will be entitled to representation under the legislation. It should also be noted that importers, as members of the NDB, would likely have access to the proprietary research and marketing strategies developed by the NDB.
    

2. The likely impact an import assessment will have on recent legal challenges to the constitutionality of the entire dairy checkoff program. In June 2000, the Supreme Court, in United States v. United Foods, Inc. invalidated the statute creating the mushroom checkoff program on grounds that it was a form of compelled speech and violated dairy producers’ First Amendment rights. One group, the Center for Individual Freedom (CIF), has been involved in legal challenges to the beef and pork checkoff programs and filed an amicus curiae brief in the United Foods case. Spurred by the United Foods decision (and perhaps by dairy importer funding), the CIF has begun the process of challenging the legitimacy of the dairy checkoff. They have already launched a national advertising campaign seeking disgruntled domestic dairy producers who oppose the checkoff program to join a legal challenge. While most legal observers believe that disgruntled domestic dairy producers standing alone are likely to lose their challenge, dairy importers, who are not as tightly regulated as domestic producers, have a very good chance to succeed in their efforts to invalidate the import assessment. Unfortunately, a combined lawsuit featuring both dairy importers and disgruntled domestic producers may wind up invalidating not just the import assessment, but the entire checkoff.
    

3. The possibility that dairy product importers, citing U.S. obligations under the World Trade Organization (WTO), will be able to use checkoff funds for the promotion of imported dairy products including milk protein concentrate and foreign cheese. The ‘national treatment’ principle, enshrined in the Uruguay Round Agreements, requires the U.S. to give equal treatment to both imported products and domestic products. Since domestic dairy producers are currently given the option of crediting up to 10¢ of the 15¢ assessment to specialized promotion boards, importers will demand that they be given equal treatment and be allowed to credit their assessments to an import promotion board. By way of precedent, the recently authorized avocado checkoff program gives a share of the import assessment to ‘importer associations’ for country-of-origin promotions.
    

4. The elimination of U.S. tariff rate quotas. The dairy checkoff was created to increase the demand for dairy products. As demand increased, the theory reasons, all dairy producers would benefit in proportion to their market share. While that reasoning may be accurate for domestic dairy producers, tariff rate quotas prevent its applicability to dairy importers. The amount of dairy products that can imported is limited by the tariff rate quota for that particular item. Since dairy products are already entering the U.S. at the quota levels, dairy importers are prevented from importing any more product regardless of how much demand increases. This will play into the hands of our trading partners, who are already pushing for the elimination of our tariff rate quotas. They will argue that imposing an assessment, without providing the means to benefit from the assessment is a non-tariff trade barrier that is invalid under the WTO. Accordingly, they must be given more access to the U.S. market so their producers and the importers who sell their products can enjoy the benefits for which their products are being assessed. Since Section 22 was traded away in the Uruguay Round, tariff rate quotas are the only protection domestic dairy producers have against import surges. If tariff rate quotas were removed, it is likely that the U.S. price for milk will fall to world levels.

Solution

The DTC recommends that:

• Implementation of the dairy import assessment be delayed until public hearings are held and a prudent determination can be made regarding the unintended negative consequences; and

• Continuation of agricultural commodity checkoff programs be subject to periodic review referenda and initial referenda for new classes of participants and new checkoff programs be held prior to the collection of any new assessments.

The DTC’s recommendation is consistent with the approach suggested by the Wisconsin Farm Bureau, Women Involved in Farm Economics (WIFE), individual members of dairy promotion boards including the Wisconsin Milk Marketing Board (WMMB) and the National Dairy Board (NDB), and other leading dairy officials and producers. Public hearings will give lawmakers an opportunity to carefully consider the likelihood of each of the concerns addressed above as well as other possible changes to the dairy checkoff. Referenda will help to shield the promotion programs from the legal challenges and will increase the accountability of the promotion boards to the assessment-paying farmers.