Not a legal butter sale

Press, 31 October 1984, Page 18

Not a legal butter sale

The rules governing international trade in dairy products may be breaking down. As the secondlargest international trader in dairy products, and because of the importance of the dairy export trade to the health of the New Zealand economy, New Zealand stands to lose far more than any other country if the rules do break down. The most blatant breach has been that of the European Economic Community, which plans to sell up to 200,000 tonnes of butter from its stocks, some of it below the minimum price agreed under the General Agreement on Tariffs and Trade. The significance of the price is not only that it is typical of the way in which the European Community is able to sell butter cheaply because of the enormous subsidies that it pays its farmers under the Common Agricultural Policy, but that the sale breaks an international agreement that should have legally binding provisions. Because of the legal implications of the E.E.C. move, the protocol committee dealing with dairy fats of the International Dairy Products Council, a subsidiary body of G.A.T.T., held a meeting on Tuesday of last week. New Zealand sent a deputy secretary of the Department of Trade and Industry, Mr E. A. Woodfield, to the meeting in Geneva. It might have been expected that the E.E.C. would, as it has been careful to do in the past, demonstrate that what it was doing was legally acceptable under G.A.T.T. Instead, it scarcely seemed to bother making a case to justify its position. It made it clear that the proposed sale would go ahead with or without the approval of G.A.T.T. The domestic pressures to get rid of some of the stockpile of butter were apparently considered of more importance than the observance of the legal requirements of G.A.T.T.

Just why the E.E.C. should take the attitude it did is difficult to fathom. Possibly an agreement to make the sale was part of a deal between the European Commission and the E.E.C. farmers over methods of reducing milk production. All but three members of the commission change at the end of this year, and this may have given certain members a boldness, or even a carelessness, about how the action would be regarded. It is too early to say whether the action over the sale of the butter to

the Soviet Union and to the Middle East will be a forerunner of similar sales, but the possibility cannot be dismissed altogether. After all, the E.E.C. has a stockpile of about 1.2 million tonnes of butter and ignoring the legal barriers is often easier the second time around. Talks will be held soon among the E.E.C., New Zealand, and Australia. So far the E.E.C. has shown <no inclination to stop the sale. The regulation governing the sale will come into effect on November 5. The strategy adopted by New Zealand was to establish that the proposed sale was in breach of the G.A.T.T. minimum price and the International Dairy Agreement. The protocol committee ruled that the international price agreements were being breached. New Zealand took the lead in commenting on the E.E.C. action. This is the usual practice in dairy problems. Australia would take the lead in beef problems. New Zealand’s position, besides being strongly supported by Australia, also gained support from the United States, the Nordic countries, the Swiss and the Japanese. Having made the legal argument, there is little more that New Zealand can do except to limit the damage. One way to do that is to try to ensure that the ignoring of G.A.T.T. undertakings is not repeated. One of the ways in which it will be impossible to limit the damage is in the effect on other sales. There is likely to be a great deal more butter around the world, and the price will drop even further than it has already. One of the recurring fears about the world dairy trade has been that a trade war will develop between the Americans and the E.E.C. Dairy products are likely to be at the centre of such a trade war. The United States has just concluded a sale of skimmed milk powder at highly concessionary rates to Iraq, whose market New Zealand has been cultivating carefully. The Americans argue that this sale took New interests into account; but the New Zealand view is different. It may be argued that the American sale is not a direct retaliation for the E.E.C. move, but the international atmosphere over the dairy trade undoubtedly helps to foster a mood in which retaliation could flourish. If such a trade war did break out in earnest, it would be almost impossible to limit the damage.