China’s anti-subsidy (CVD) investigation into dairy imports from the European Union (EU) is setting a new challenge for the protection of global trade. In August 2024, China initiated an investigation into dairy products, particularly liquid milk and cream, as well as various types of cheese from the EU. These investigations focus on subsidies provided under the EU’s Common Agricultural Policy (CAP). In response, the EU has requested consultations via the World Trade Organization (WTO) to defend its dairy producers and the subsidy system.
This article aims to provide a detailed exploration of the political and legal processes behind this situation, as well as the potential consequences.
China’s anti-subsidy investigation: The background
On August 21, 2024, China launched an anti-subsidy investigation to assess the impact of EU dairy products on the Chinese market. The affected products include liquid milk and cream with fat content over 10%, as well as various types of cheese. The goal of the investigation is to determine whether the EU’s subsidy system, operating through CAP, provides unfair advantages to EU producers, giving them an unjust trade edge in the Chinese market. China argues that these subsidies violate international trade rules, particularly those established by the World Trade Organization (WTO).
The launch of this investigation is not an isolated case. Recently, China has initiated similar trade defense measures, often based on questionable allegations. The Chinese Ministry of Commerce claims that the EU’s subsidy policies are harming the Chinese dairy industry by providing low-priced imports, which put significant pressure on local producers.
The EU has responded by requesting WTO consultations, marking the first time it has sought to challenge a trade defense measure at this stage. This step reflects the EU’s commitment to safeguarding its dairy industry and agricultural policy, which could face significant disruptions if the investigation proceeds without resolution. If these consultations do not result in a satisfactory outcome, the EU may request the establishment of a WTO panel to settle the dispute.
The outcome of this case could set a significant precedent for how the EU handles similar challenges in the future, especially as trade disputes in the global dairy market grow in frequency and complexity.
The EU's response: The WTO dispute resolution mechanism
In response to China’s actions, the EU initiated consultations with the World Trade Organization (WTO) Dispute Settlement Mechanism on December 15, 2024. The purpose of these consultations is to assess the fairness and legality of China’s investigation into EU dairy imports. The use of the WTO dispute resolution mechanism is an important legal step, as it allows the EU to defend its interests in international trade under established legal frameworks. This marks the first time the EU has requested consultations at the early stages of such an investigation, signaling its readiness to use all available legal tools to protect its industry.
The first step in the WTO dispute resolution process is consultations, where both parties attempt to resolve the dispute through direct negotiation. If consultations fail to produce a solution, the next step may involve the establishment of a panel that will make a ruling on the alleged violation and its consequences. The goal of the WTO process is to enforce international trade rules and ensure fair competition. This is particularly critical for the EU, as the dairy industry and the agricultural sector are essential components of its Common Agricultural Policy (CAP).
The common agricultural policy and subsidies
The Common Agricultural Policy (CAP) is one of the EU’s most important economic and political instruments, designed to ensure the competitiveness and sustainability of the union’s agricultural sector. CAP aims to support EU farmers, promote sustainable agricultural practices, and encourage economic development in rural areas. The subsidy system was established to provide farmers with the necessary financial support to become more competitive in international markets. As a result, EU subsidies not only stabilize the agricultural sector but also contribute to the overall stability of the EU economy.
However, the concerns raised by the Chinese Ministry of Commerce regarding subsidies are not new. According to the rules established by the WTO, subsidies must not distort international markets. The EU argues that its subsidy programs are fully in compliance with international trade rules and do not harm Chinese dairy producers. The EU’s position is that its subsidies are meant to support farmers’ competitiveness, not to create unfair trade advantages.
Abuse of trade defense measures
The WTO’s provisions regarding trade defense measures aim to prevent the abusive application of such measures. Measures like anti-dumping or anti-subsidy investigations are meant to be used only when real market distortions and violations are detected. Excessive or unjustified use of these measures not only distorts competition but also threatens long-term global trade stability. The EU’s concerns regarding the misuse of trade defense measures are valid, as such actions can undermine not just the EU industry, but also the fairness of global trade as a whole.
Impact of China's measures
The impact of the anti-subsidy investigation initiated by China on the EU dairy industry and global trade could be significant. For the EU, the primary goal is to ensure the possibility of free trade while protecting its agricultural producers, who receive support through the Common Agricultural Policy (CAP). If China’s defensive measures remain in effect during the WTO proceedings, they could hinder not only the dairy industry but also global trade in general. The undermining of free trade principles as a result of such measures could have far-reaching effects on the functioning of the international economy.
What lies ahead for Europe?
If the WTO proceedings do not yield a resolution and the anti-subsidy measures in question remain permanently in place, it could have serious economic consequences for EU farmers and the European dairy industry. The most likely outcomes include rising dairy production costs and reduced market competitiveness of dairy products. Additionally, the WTO ruling could provide insights on how to handle international trade disputes in the future and how to ensure fair competition according to global trade rules.
Europe’s dairy industry, particularly in major milk-producing countries like the Netherlands, France, and Germany, could lose significant export markets. China, one of the world’s largest dairy consumers, is a key market, and losing this market could result in financial difficulties for European dairy farmers and processors.
Experts have mixed opinions, with some arguing that the EU’s dairy subsidies are in line with international trade rules, meaning the EU will likely counter China’s accusations at the World Trade Organization (WTO). If China imposes tariffs or other restrictions, EU dairy exports could decrease, potentially leading to falling milk prices in the EU due to oversupply.
Moreover, dairy producers may seek alternative markets to offset the loss of the Chinese market, but they will need to adapt to changing conditions. The situation remains fluid, and the outcome of legal proceedings or bilateral negotiations could play a crucial role in determining the final result.
Source of official information: European Commission
Request for consultations by the European Union
Summary: NBM.
